The wishful thinking about house prices smacks of dotcom delusion

We all know that investments in the housing market has made many people ‘rich’. However, there is no rational reason to expect property to always be a good investment.

In the UK the property agents pretend like they are back to the races of huge gains for the first time since 2007. More of them now expect prices to rise then fall because the asking prices are going up monthly. Unfortunately the agents accentuate only the grounds for optimism.

First of all, they do not communicate to the people that the house prices are still above their historical trend. Secondly, the lifeblood of the housing market, credit, has drained away. The base rate may be 0.5pc, but that means nothing to someone looking to take out a fixed-rate mortgage. Third, the downturn in the housing market since its peak in 2007 is short by historical standards. Probably it will take some more years.

I suppose it’s clear that the housing market optimism is a rose-tinted view and we have to be aware for all the false beliefs. The housing market story is maybe very similar to the dot.com bubble history. People also think that shares can only rise, what means that investors only see buying opportunities. The argument that house prices at least will hold their value is also a false belief. In Japan, house prices already fell by 68 pc in real terms between 1991 and 2006.

All this together learns us that maybe a similar dot.com bubble is coming...

http://www.telegraph.co.uk/finance/comment/tom-stevenson/5880282/The-wishful-thinking-about-house-prices-smacks-of-dotcom-delusion.html

Matthijs Vanrapenbusch