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Miles backing futures’ view on property falls

Morgan Stanley chief economist David Miles believes moves in the futures market anticipating a 10 per cent fall in house prices in the next year are on the right track.

Speaking at last week’s Association of British Insurers research conference in London, Miles said he also agreed with future market forecasts suggesting a 3 to 4 per cent decline the year after followed by a flattening out and then a rise.

He told delegates that in current market conditions, industry “talk is cheap”, with many vested interests being voiced, and that traders actually placing bets with money in the derivatives market are the best indicator.

He said using the example of a futures contract where the underlying asset is Halifax’s house price index, the forecast would imply that the index a year from now would be close to 10 per cent lower than current levels.

He said: “You might look at that and say that would be Armageddon. I think that one should see that 10 per cent in context. A 10 per cent fall in average house prices would mean prices would be back on average to where they were in September or October 2006 so most people who bought a house more than a year ago would find on average that their house prices were no lower than they were.”

Miles said Morgan Stanley has tried to calculate how much of the big increase in real house prices in recent years is down to fundamental factors, such as higher incomes and increases in population, and how much is due to other factors. He says the estimate is that around 50-60 per cent can be accounted for by fundamentals.


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