Department of uh-oh

Monday’s FT reports:

The City is betting on UK house prices falling by 7 per cent next year in new tradeable derivatives contracts, which some bankers say is the best indicator of the market’s direction as millions of pounds are riding on the outcome.
These future housing contracts, which were published for the first time this year and have seen a surge in trading volumes in the past few months, are predicting much bigger falls in property values than other non-tradeable forecasts.

That’s not good. We all know that such money-on-the-line forecasts tend to do better than cheap-talk forecasts, even if the cheap-talk is from an independent analyst. Presumably some of those betting think that a fall of much more than 7 per cent is plausible. It is plausible; I don’t know where the idea arose that house prices fluctuate only between steep increases and pauses for breath. Certainly not from anyone observing the situations in Germany, Japan, or in the UK less than twenty years ago.

Tim Harford’s blog

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.