Positive Data Released For Us And Uk Property Markets
News Posted On: 23 September 2009
Gamblers, sorry investors, in what have been described as 'toxic' instruments otherwise known as derivatives have revised upwards their expectations for the UK housing market. Values are now apparently expected to rise by 2 percent by end-2010, against a previous projection made as recently as June for a fall of 11 percent. Furthermore average UK house prices are now expected to rise 1.3 percent by end of this year, instead of the August projections of a 1 percent fall.
Peter Sceats, a director at broker Tradition Property said "Residential derivative traders initially priced in an 'Armageddon factor' following the credit crunch and then gradually unwound the discount as the effect of the bailout and stimulus packages took hold,"
Well the 'Armageddon factor' of a 600Bn plus loss last year has provoked Barratt, the largest UK homebuilder, to announce a rights issue today. It remains to be seen if institutions will be tempted by the lure of a recovery in 2010/2011.
Meanwhile the Federal Housing Finance Agency reported on Tuesday that U.S. single-family home prices rose by a seasonally adjusted 0.3 percent in July from June. This is nothing to get too excited about yet, as prices were still 4.2 percent lower than the previous year and a full 10.5 percent below their April 2007 peak.
Nevertheless the housing crash seems to have reversed at least for the time being. Whether the upswing can gain further momentum remains to be seen, as many adjustable rate mortgages are due to be reset in the coming year. However if US home prices continue to hold in the teeth of the coming ARM reset headwind, our prognosis, which has been bullish for most of this year, will remain unchanged.
Looking at the wider picture, the driver for solid prices in anything other than cash could be forced currency devaluation, which is the classic escape route of the over-indebted nation. This may be counterbalanced with a need to raise interest rates to defend deflating dollars and pounds. We live in interesting times indeed.
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