At the weekend one of BIGbleu's readers forwarded us the email trail of a conversation she had with Merryn Somerset Webb of MoneyWeek. The conversation started because the reader, who also reads MoneyWeek, forwarded Merryn a link to our 30.04.10 blog on MoneyWeek’s UK house price predictions. She subsequently asked Merryn if she would explain why she disagreed so strongly with the BIGbleu positive view of the housing market.
Merryn provided this critique (click here to view) of the BIGbleu 2010 house price prediction - unfortunately we couldn't upload the image to seeking alpha. We have put our critique of her critique in dark blue boxes.
As you can see from the first paragraph, Merryn thought that our previous blog entry (on MoneyWeek's house price predictions) was rude. That wasn’t the intention and absolutely no offence was meant. We enjoy reading MoneyWeek and Merryn is obviously a very generous lady to have replied personally to the reader, answering her questions so comprehensively. Maybe our views will be wrong and Merryn will be able to thoroughly enjoy having the last laugh.
Before finishing we’d just like to comment on the weakness in the markets over the past week or so and the relevance to the hosuing market.
Over the past few months there has been no end of bad news – weaker Chinese growth; sovereign default issues and the Greek crisis; the collapse of the Euro; nervousness about bank regulation; the German ban on naked short selling; Goldman Sachs being sued; the largest oil spill in US history; and volcanic ash clouds. In the UK we’ve also had an election and a hung parliament.
Ever the optimists, our view is that the housing market and financial markets have held up remarkably well given this backdrop. We think that’s very positive. Having recovered so far, so fast since March 2009 most were expecting a pull-back anyway. Given the circumstances it’s very reassuring and encouraging it hasn’t been larger. Fear has well and truly returned and all the bears have broken their long silence to say “I told you so, I told you it wouldn’t be a V shaped recovery”. That makes us positive too!
The relevance to the housing market is twofold. Firstly, we think financial markets will recover from their weakness, either on their own or with government help if they go much lower. Secondly, one of the reasons we have given for future rises in house prices is inflation. We think these scary market pull-backs are necessary for that inflation to happen. They scare the authorities as well as investors and will result in monetary stimuli remaining in place much longer than necessary. They also keep bond yields low which helps maintain low rates.
Fingers crossed for the next few weeks and months!