Ali’s blog

Mostly quant stuff with occasional digressions

UK house prices

Posted by alifinmath on April 18, 2008

Martin Wolf. in the FT today:

It is high time the British realised a people cannot become rich by selling ever more expensive houses to one another. According to the International Monetary Fund’s latest World Economic Outlook UK house prices are more overvalued, relative to economic fundamentals, than those of almost any other high-income country.

Yep. Hitler used to call the English a nation of shopkeepers. I expect house prices to decline in pound terms over the next several years and I expect the pound to devalue against the euro. In a few years time I may even be able to afford to move back to England (though I doubt I will).

The adjustment of the economy towards exports and away from domestic spending is now, at last, under way. Fortunately, the exchange rate is taking much of the strain. In eight months, competitiveness has improved by 16 per cent against the UK’s eurozone partners, something Spain or Italy will only achieve painfully, after years of disinflation.

The disadvantages of belonging to the euro-zone are that you lose control over exchange rates, interest rates and monetary policy in general. The Mediterranean countries, with their flaccid economies, might do better to secede from the euro and regain some flexibility.



One Response to “UK house prices”

  1. Chris Prouty said

    I’ve said it before: I’m short the sterling. The UK hasn’t had the other shoe drop yet, really, but the cracks are beginning to show in the UK housing market according to what I’ve read.

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