10° 40' N, 61° 30' W

Tuesday, April 29, 2003

Property Bubble

[NOTE: I accidentally deleted this post while editing something else, and with some help from Bonobo Land, recovered it--DCS]

My eyes normally glaze over at property columns, but the FT's new Property Editor, Henry Tricks, made me laugh:

Roger Bootle of Capital Economics, author of The Death of Inflation, believes low inflation will eventually depress all asset prices, including housing. Bootle argues that, like reckless price/earnings ratios at the peak of the equity bull market, house-price-to-income ratios in the UK housing market are at perilous highs - and will fall 20-30 per cent over the next few years to return to their long-term average.

However, even he acknowledges that homeowners do not behave as rationally as economic science suggests we should.

His is a case in point. As "Economics Man", he would have considered short-selling his six-bedroom Georgian house on the River Thames in Richmond if a market for such a property existed. As a family man, he realises that would be perfectly foolhardy. "It might be quite difficult to persuade my wife."

Tricks (in the Weekend section, no less) is trying to hold out hope that the UK's housing bubble will not crash. Given the current market, he may be a little to sanguine, but you have to admire his optimism.