As predicted, there is more to say about the London housing market. It is widely known that the buying pressure on prime London properties is coming from overseas. The eurozone crisis and the creation of fortunes by the commodities boom have helped push lots of money into the nicer neighbourhoods of central and west London.
But I had not previously grasped that foreign demand was also driving segments of the market below the true “prime” postcodes, and that that foreign demand is not primarily European or Middle Eastern but rather from Hong Kong, Singapore and Malaysia. That is the strong message from this extraordinary chart from Jones Lang LaSalle, shared by Ed Hammond, our property correspondent, in the latest Note video: Read more
Judging by the response to my Monday column, a lot of people are interested in central London property. As that has been followed by news that a London house is on sale with an asking price of more than £100m, in Hampstead, it’s easy to see why. One of many requests was for more granular data.
Thankfully, I can oblige. London, obviously, cannot and should not be treated as one market. In particular, “prime” central London, because of its appeal to international buyers, seems to follow very different dynamics from the rest of the capital. That appeal varies according to area. The following chart, provided by Hometrack, plots every Greater London broad postcode on two scales – their performance since the overall market first peaked five years ago, and their actual price. Read more
Marc Chandler of Brown Brothers Harriman is always interesting. His take on the QE3 debate, ahead of the FOMC’s next decision, might startle many in the US: the US economy is in an enviable position – why is there any need for dramatic new exceptional measures?
Evidently many Americans do not feel as though they are much to be envied, and unemployment has dragged on at levels that are politically unacceptable. But America’s post-Lehman economic trajectory, with the recovery looking ever more firmly founded, should certainly be the envy of western Europe and Japan. Read more
Whether it likes it or not, the Federal Reserve has been pulled into the political thickets. The demand is for it to “do something”. Whatever it does at its meeting this week will have political ramifications, and you do not need to belong to the Ron Paul faction to question whether further QE of any kind is necessary at this stage.
As James Mackintosh pointed out in the Short View, inflation expectations and asset prices are both rising now, rather than falling as they were before QE1 and QE2. This Fed has a philosophical aversion to deflation, but there appears to be no imminent danger of that. Read more
The most profitable way to be wrong over the past five years was to bet that frantic printing of money by central banks would create inflation – so buy gold. Since the start of 2007 gold has risen at an annualised 19 per cent, a tasty return, particularly when compared to equities.
Yet, there’s been no sign of consumer price inflation, even as the US Federal Reserve explicitly targets asset price inflation (Fed jargon calls this the “portfolio channel” for monetary transmission of quantitative easing; in English that translates as rigging the market). Read more
Mario Draghi has at the very least pulled off a great coup of expectations management. On Thursday he said exactly what everyone expected him to say. Markets had already rallied in hope for more than a month ahead of his announcement. This might usually be the cue for a sell-off, but instead the euro held steady, while peripheral bond and stock markets went to the races.
Spain’s 10-year yield is now below 6 per cent, while the buying opportunity when this risk-on wave started now looks to have been immense. Spanish shares (as measured by the Ibex) are up by a third in the two months, while Eurozone bank stocks (as measured by the FTSE Eurofirst index) have gained more than 50 per cent. I discussed all of this with Jamie Chisholm in the first of the new series of Authers’ Notes:
The larger questions are whether this can continue, and if there is any way to time the risk-on and risk-off waves. Read more
John Authers, my predecessor as Short View writer and co-author of this blog, published some interesting graphs this week about London property, as he worries about a bubble.
I don’t often disagree with him, but on property I think he’s missing a trick. He pointed out that Miami’s housing bubble was far worse than London’s, but that London’s price rise is now approaching where Miami was:
But these prices (rebased to January 2000) were in local currency terms. And London’s property market is so important to the country, and its buyers so international, that it makes more sense to compare these prices in constant-currency terms.
That’s easily done by converting London prices to dollars and then rebasing:
So from an international perspective the boom in London prices was every bit as big as in Miami; they just peaked slightly later. The bust was of the same magnitude, and even more extreme, since it took place through the collapse of sterling rather than the somewhat less rapid fall in property prices. Read more
Greece has become synonymous with dodgy statistics, after its government lied about debt and deficits in order to qualify for the eurozone. If you think government pressure on statisticians is history, think again: Greece started a criminal probe of the head of the new independent statistics agency late last year, for supposedly inflating the national debt (he says he simply told the truth about Greece’s dire situation).
It turns out Spain and Greece are just part of a wider picture: economic forecasts from eurozone countries are far more likely to be influenced by wishful thinking than other countries. Even worse, Harvard researchers Jeffrey Frankel and Jesse Schreger found that all the extra optimism showed up when governments were in breach of the Maastrict treaty’s 3 per cent budget deficit rule. Today’s Short View video discusses it, but more below.
There are interesting arguments over whether the US residential housing bubble has really finished correcting, as I argued in a column earlier this week. But if it hasn’t, then the outlook for property in theUK, and most especially London, is alarming.
Of all the local property bubbles, Miami’s was the most extreme. Let’s look at it in comparison with London. For the US, we use the S&P Case-Shiller data, which are now widely followed. For the UK we use data from the LSL Property Services/Acadametrics indices, which is deliberately setting out to map the UK property market in the same way that Case-Shiller maps the US. Handily, both are set so that the beginning of 2000 equals 100.
So Miami plainly had all the symptoms of a bubble, with prices leaving for orbit in a way that they never did in London. But London’s inexorable rise looks extraordinary by comparison. Read more
The Shanghai Composite now rests at its lowest level since March 2009 – which is just when stock markets the rest of the world over began to recover. Admittedly, Shanghai bounced several months earlier, once China started administering its stimulus. But still, this is quite a turn of events given that the Chinese economy continues to grow far faster than the rest of the world.
What gives? Specifically with relation to Shanghai, it entered the period in the aftermath of a historic bubble that looked almost exactly like the Nasdaq bubble that had burst seven years earlier. There follows a chart from the Short View back in late 2007, when the Shanghai had indeed, we now know, peaked.
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This blog is about asset allocation at the global level. It is an ongoing attempt to explain why investors and markets behave the way they do.
John Authers officially takes the "Long View", while James Mackintosh takes the "Short View" when it comes to investment decisions. In practice both of us end up taking both long- and short-term views, and occasionally disagreeing with each other; all comments and disagreements are very welcome.
James Mackintosh is the Financial Times' Investment Editor, writing and presenting the daily Short View column and video. In 16 years at the FT his posts have included comment editor, motor industry editor and hedge funds correspondent, as well as spells in the Parliamentary lobby and Paris. He was the first reporter hired for FT.com, joining two weeks before it launched.
James has a degree in philosophy and psychology from the University of Oxford, where he spent two further years in post-graduate study of philosophy. If he wasn't here, he'd be skiing.
John Authers is the Financial Times' Senior Investment Columnist, writing the Saturday Long View and a regular Monday column. In a 22-year career at the FT, his previous posts have included global head of the Lex column, investment editor, US markets editor, Mexico City bureau chief and US banking correspondent. His latest book is The Fearful Rise of Markets.
John has a degree in Philosophy, Politics and Economics from the University of Oxford, and an MBA from Columbia University. Perhaps more interestingly, he captained the highest scoring team in the history of University Challenge while at Oxford, and also once sung in Pavarotti's backing choir.