Thursday, April 15 2004

Following Tony Dye’s pronouncement yesterday that house prices are set to fall as much as 30%, an economist at Goldman Sachs has joined the fray predicting a less dramatic fall of 10% over two years.

Ben Broadbent, senior European Economist for the firm, said in Sachs’ weekly analysis that the housing market is set to weaken.

‘A rapid rise in interest rates would lead to lower house price inflation, even falling prices’ his report says.

‘We estimate that a rise in interest rates over the next year or so? would reduce house price inflation to zero, on a sequential basis, by the end of 2004,’ it continues.

‘On the central projection, prices would then fall by close to 10% over the following two years.’

However, other commentators point to the fact that if the housing market did weaken interest rates could be cut, and cite the strength of the economy and the high level of consumer confidence as barriers to a fall in prices.

Meanwhile, others continue to look back to the situation in the early nineties and see similarities. Gavin Cameron from Nuffield College in Oxford tells the FT today: ‘No overvaluation of this kind has been corrected without a crash.’

Without doubt, consumer confidence is holding up a rising market, but how long this will last is, indeed, anybody’s guess.