Thursday, September 07, 2006

House Prices

As the BBC reports, house prices are rising solidly. The stagnation that was big news around a year ago was never likely to be prolonged thanks to the strength of demand in a market with inelastic supply. However, I think the importance of this rise is probably overrated. The rise isn't dramatic enough to justify worries about a bubble and already high levels of house prices relative to income will magnify the impact of recent interest rate changes. With the somewhat precarious nature of the rest of the economy's recovery it would seem that another interest rate rise might not be necessary soon although interest rate futures have risen as the market prices 5% interest rates in.

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