Wednesday, May 05, 2010

Has anyone else noticed the housing market?

With the upcoming election, as well as the crisis in Greece it seems like every single ounce of economic punditry has been devoted to discussing the deficit. The housing market has been virtually ignored, I'm thinking this might be a mistake.

Over the last year house prices rose by 10.5%, this leaves them aboout 10% short of the previous high in October 2007 and this has set me thinking. The credit crunch was an American thing, US has prices fell and the whole thing undermined the securitised house of cards that was propping up the whole thing. In Britain we suffered the side effects of this with a fall in house prices, but our house of cards remained intact and prices soon recovered.

I suppose my question is: Were house prices overvalued in 2007? If not then I suppose we can rest easy and be thankful for the recovery. If they were, then we really have to question whether there is some undiscovered point at which our own housing market will suffer a US style collapse.

It may just be me here, a 10.5% growth in house prices in the tail end of a recession just seems over the top. It has me really worried about the state of the housing market. Even if we ignore the social consequences of overpriced housing we still have the question of whether the economic recovery is based on little more than a new bubble in the housing market. If that's the case this elections obsession with the budget deficit will all seem like a lot of wasted energy.

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