There could be a temporary lull in the correction of asset prices due to an illiquid market and the resurgence of economic fundamentals that point to further house price falls. Not all markets follow the same route or repeat the historical path of a straight fall. House prices are now higher than at the start of the year according to the Halifax (majority owned by the state), due to lower house prices and greater affordability. The latter assertion is not borne out by the low level of sales compared to the boom years.
This equilibrium is not expected to last as the "sweet-spot" will be rectified by higher interest rates or the continued rise in unemployment and foreclosures. The Ernst & Young ITEM Club attribute the rise in prices to a number of cash-rich buyers coming out of the woodwork, an asset unwind that will be laid to rest from the end of the year
The reason behind the double dip, according to ITEM, is that a shortage of homes for sale has driven prices up and that once those buyers with access to big deposits dry up, there will be nothing left to support growth.
“A small number of cash-rich buyers have supported prices, but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year,” said Hetal Mehta, advisor to ITEM.
There is no evidence that we have seen the market floor for asset depreciation or that such a floor will only be delayed by an unsustainable fiscal stimulus. When Moodys calculate that a large number of further writedowns are required for the British financial sector, we can anticipate a long-haul, with the potential for further crises.
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