Friday, November 26, 2004

Housing market 'to fall by 20pc' (UK)


By Philip Aldrick , Telegraph

Roger Bootle, a leading City economist, yesterday warned that "the world economy is poised on a knife-edge" because the over-inflated internet bubble has simply transferred to the world's housing markets.

Speaking after the Chartered Institute of Management Accountants' annual conference, he said: "What has happened in the housing markets is a bubble transferred from the equity market. Just like that bubble, people have been pursuing money for nothing. They think it's a no-brainer - buy as much as you can and it'll make money for you."

Mr Bootle, HSBC's former chief economist and now managing director of the consultancy Capital Economics, expects the UK housing market to collapse by 20pc over the next three years, driven down by overvaluation. "It has already started," he said.

He cited the soaring house price-to-earnings ratio, a key valuation measure, which is more than 50pc higher than the long-term average.

A collapse in the housing market was just one threat to the global economy, he said, with the weak dollar and heavily indebted US and UK consumers also likely to have a damaging effect.

Unlike last time, there was now nowhere for the bubble to transfer and the global economy could be in for a hard landing.

But, he added, the problems had emerged at the same time as China offered "a fantastic expansion of production . . . so the opportunities for increased growth in the world economy are enormous."

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