From: M Holmes 
Newsgroups: uk.politics.misc uk.finance
Subject: Re: The Sun blames Brown for coming economic recession
Date: Tue, 17 May 2005 10:55:54 +0000 (UTC)

In uk.finance curiosity  wrote:
> On Tue, 17 May 2005 10:20:57 +0200, curiosity  wrote:

> Oh, I forgot to post this:-

> http://www.thisismoney.co.uk/mortgages/house-prices/
> article.html?in_article_id=400601&in_page_id=57#

> ".......The RICS said that property sales were 30% lower during May
> than they had been in the same month last year.  And although prices
> have followed sales volumes downwards, they do not appear to have
> fallen enough to tempt new buyers into the market..."

Two points:

1. This kind of divergence is a classic sign of the top of a bubble. If
you're going to play a bubble with a view to getting out at the top,
this is what you look for as it precedes the stampede.

2. The idea that prices can fall to a level where buyers will come in
seems fine on first analysis. However this work mainly in cash markets
where buyers can snap up a bargain. In markets where buyers must carry
loans, they will worry that in falling markets, they'll be forced to
carry loans worth more than the assets (negative equity) if prices
continue to fall. This worry, and the simple fact that if they wait to
buy, they'll get an even better bargain, tends to drive prices ever
downwards in a reverse of the psychology of the boom whn buyers feel
they must buy in at any price, lest prices rise higher.

> I don't know about you but I think that means that prices have fallen
> but not enough. 

The trouble is that it's the marginal buyer who decides what "enough"
amounts to in this case, and it's not obvious what he's thinking.

> That's probably enough on this topic for a while...... 

Heh. Good one!

FoFP