Expert Zone

Straight from the Specialists

When are house prices a worry?

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

As I speak with a relatively recognizable British accent, travelling by taxi in many Asian countries has become something of a trial in recent years. Whenever my nationality is recognized, I am (courteously) asked for my views on the London property market, and where to buy. In a world of low interest rates, property has become increasingly fashionable, and somehow housing advice delivered in a British accent has become highly sought after.

The development of One Hyde Park is seen in LondonProperty prices in London are now over 30 percent above their pre-crisis level. For the rest of the UK, house prices are now back where they were before the onset of the economic crisis (it should be noted that the economy is around 13 percent larger in nominal terms over the same period, so the house price to GDP ratio has fallen for the country as a whole). In the United States, house prices have yet to regain their pre-crash levels, but they are up 20 percent from their lows. Even in the Euro area, not an economy noted for its vibrancy, German property prices are 10 percent higher than they were before the crisis.

The increase in property prices is starting to attract the attention of policy makers – certainly in the United Kingdom, where there is a great deal of media focus on the issue. The interesting question is at what point should property prices become a cause for concern for policy makers? As with most issues in economics, there is no simple answer.

Sold new build homes are seen on a development in south LondonRising property prices, in economic terms, are neither automatically good nor automatically bad. Rising prices of any asset are neither good nor bad – if a price increase means that an asset is fairly valued, it is good, if a price increase means that an asset is unfairly valued then it is bad (a concept that television reporters covering equity markets would do well to learn). A changing asset price should not, of itself, worry policy makers. What will worry policy makers are the consequences of rising property prices. There are four areas of focus.

Why the Fed is not worried by emerging market moves

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Several emerging market central banks have been forced to react to market events already this year. Interest rate increases in India, Turkey and South Africa followed bond or currency market volatility. Argentina has endured dramatic moves in its currency, and Brazil has been forced to tighten policy.

Decoding political risk no mean feat

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Politics is playing a dominant role in financial markets today — and generally speaking, investors do not like it. Political risk is an additional layer of uncertainty that has to be factored in while making investment decisions. Because political risk is intimately linked with the uncertainties of human behaviour, the impact of political risk can at times seem to be almost random. After over two decades as a professional economist, I can assert that forecasting economies is tough. Trying to forecast what politicians are going to do is even worse.

What the Euro means for Asia

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The Euro should not exist. In a perfect world (run by economists) the Euro would never have been created. Sadly, however, the world is not perfect — and it is run by politicians. The result is an entirely dysfunctional monetary union.

There is no place like home

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(Paul Donovan is a Managing Director and Global Economist at UBS. The views expressed in this column are the author’s own and do not represent those of Reuters)

Most economists believe that nearly everything in this life can be reduced to an economic explanation.

Asia and the euro crisis

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(Paul Donovan is a Managing Director and Global Economist at UBS. The views expressed in this column are the author’s own and do not represent those of Reuters)

The euro should not exist. More precisely, the euro should not exist in its current form, with its current membership.

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