| Topic: | Re:Re:Re:Re:Property Market Stable But Confidence Is Shaky??! | |
| Posted by: | Fraser Pearce | |
| Date/Time: | 13/06/08 11:55:00 |
| Yep, you can’t buck market fundamentals, but the factors influencing the fundamentals themselves are subject to change - easy access to cheap hydrocarbons, for starters (i.e. the basis of our exponential economic growth over the past couple of centuries)… As for demographics, there’s a broader factor oft overlooked here – the baby boom’s effect on historical interest rates and house prices (i.e. demand for housing increases when the working population’s big in relation to total population). The seminal study of this was by Mankiw and Weil in 1988, which suggested US prices would peak in 1989 and then start to decline. Mankiw and Weil were obviously wrong here, most likely because they didn’t anticipate the subsequent environment of ‘benign’ interest rates. Mankiw and Weil’s analysis was extended, however, by Robert Martin in a report written for the US Federal Reserve in 2005. Although having a US focus, Martin tested his model further by taking the UK, Ireland and Japan markets into account too. The result? The model reflected the historical peaks and troughs in American, British, Irish and Japanese house prices and interest rates remarkably well. So, historically, the Martin model was on the money. Going forward, Martin predicted changes in population demographics would cause British house prices to decline from 2010 onwards, drift south for the next 25 years and plateau for 25 years after that. |