Friday, January 20, 2006

Anatole Kaletsky (Times Online) on why house prices can keep on rising

Opinion - Anatole Kaletsky Times Online: "Why are house prices rising even as the economy falters? Good question
Anatole Kaletsky

THE AVERAGE British family earned £2,000 in the first week of this month, according to the front pages of several newspapers, simply by sitting in their house. This figure was admittedly based on one volatile and not altogether reliable house-price survey. But given that £2,000 is more than four times average weekly earnings and that several of other indicators have recently been suggesting a surprisingly frisky property market in the past few months, the story of instant enrichment for homeowners raised some perennial questions about the state of modern Britain.

First, are house prices on an up-trend? Secondly, how can house prices keep rising, even in an economy with faltering growth? Thirdly, what does it mean for society if people can earn more money by sitting in their houses and watching the price rise, than by going out to work?

The first two of these questions were answered, albeit tangentially, by the Governor of the Bank of England on the very day the property windfall story appeared in the press. Mervyn King pointed out that the prices of houses and other assets were being boosted above "normal" levels by "unusually" low interest rates - but asset prices could be sharply corrected if interest rates were to rise above the rock-bottom levels now seen not only in Britain, but around the world. "

Check out the full article. Kaletsky, an economist I have a lot of time for, explains the global factors that mean house prices may go on rising.

Chris Bell



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