# House Price Bubble?



## Liam D Ferguson (4 Sep 2002)

Interesting article on global house prices in the economist this week. Basically the economist has taken the view that house prices MAYBE exhibiting bubble like characteristics based on a fundamental analysis. The Economist is usually quite objective in its analysis and correctly predicted back in 1999 the Dot con crash of 2000 when everyone else was losing their heads and buying tech funds etc.

The magazine has started tracking house prices in most industrialised country's including Ireland. One quote that may be of interest to AAM contributors is:

"The best gauge of whether house prices are overvalued is the ratio of house prices to average disposable income—the equivalent, as it were, of the price/earnings (p/e) ratio for shares. In America and Britain, this ratio is now close to its peak of the late 1980s, and the ratio is flashing red in some cities, such as London and Washington, DC. In Ireland and the Netherlands, the ratio is at a record high."

Have a read and tell me what you think.


www.economist.com/finance/displayStory.cfm?story_id=1302601

<!--EZCODE ITALIC START-->_ Edited to fix link._<!--EZCODE ITALIC END-->


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## Bearish (4 Sep 2002)

*Dear old Dublin town*

It's too easy to lump global property trends in together to predict a price crash.

The Irish market is very different from others. The topic below is a discussion on the factors underpinning the sluggish upward price movements in the market in Ireland at the minute.


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## Lambert (5 Sep 2002)

OK so the Economist says that the "This ratio (ratio of house prices to average disposable income)  is now close to its peak of the late 1980s, and the ratio is flashing red in some cities, such as London ...'.  The Financial Times, last weekend (1st Sept) has  (Personal Finance page 3) an article on housing titled 'No, it's not the 1980s again'.  So who do believe the Economist or the FT?  Personally, unless you are a first itme buyer I think that the price of the house has little to do with it. It is the size of the mortgage and the cost of financing it it that determines whether or not you can buy a property.  If you are both high earners and you get a massive capital gain on the sale of  your existing property, you can probably trade up relatively inexpensivly (i.e. mortgage repayments as a % of your disposable income are probably a lower % than that of a first time buyer starting out).  Also 'average' price means little.  There are always a few very expensive properties sold each week which distort the 'average' (i.e. arithmetic mean) price.  The most important price is the median, i.e. the price you are most likely to encounter when you are looking for a property.  This is always less than the average price.


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