Monday, 17 September 2007

It's not just me then!

Alan Greenspan, whose reputation probably exceeds his forecasting powers* reckons that "Britain's housing market is heading for a painful correction" in an interview in The Daily Telegraph.

I reckon that house prices will follow the long-run pattern and fall by about half relative to average earnings over the next few years (see summary here), but like in the 1970s or early 1990s, the government will have to allow high inflation to mask this, so that nominal prices do not fall too far.

*Greenspan coined the phrase 'irrational exuberance' back in 1996; would he claim credit for predicting the Asian debt crisis of 1998 or the dot-com crash of 2000? Or the sub-prime collapse of 2007? A painted clock is right twice a day.