torsdag 3 april 2008

Negative Equity panic

The newspapers today are full of talk about negative equity. But interestingly, there was a warning of a major house price fall in 2003.

Writing in The Guardian in February 2003, we read that "Andrew Oswald, professor of economics specialising in the housing market at Warwick University, has predicted that negative equity will start in London and spread out across the country, just as the boom in house prices started in the capital and eventually reached the provinces...

"Prof Oswald has said he expects house prices to fall by 30% between the middle of this year and the end of 2005. This would leave at least 500,000 people with negative equity."

He was right in principle, but as we now know, the boom had four more years to run, which seems to give credence to the notion of an 18 year cycle. Whether there is any truth in that is another matter, but the bust will be far deeper than it would have been had the collapse occurred in 2005. Yet until less than a year ago most "experts" were talking about coming out of the boom with a "soft landing". It now looks as if the worst recession since 1929 is on its way.

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