Online version: http://www.lowtax.net/newsletter/ltx_focus_june09.asp

Dear Colleague,

In this month's LTX focus we take a fresh look at House Prices Reloaded.

Two years ago, as the house price boom continued in many countries across the world, we asked whether the laws of economics had been repealed. Now, we can see that they remain as true as ever.

The air is rapidly leaking from the global housing bubble. Beginning with the US, as has been demonstrated time and again with deflating asset bubbles, a wave of price falls has spread around the world, attacking in turn each of the countries which had seen particularly aggressive house price rises.

There is no demonstrable direct relationship between house prices in the USA, UK, Spain, Dubai or Australia for example and prices in some of the countries that we look at later in this report, other than the impact of global wealth and global 'feel good' sentiment - or their opposite. Certainly these factors were what drove the upward spiral of real estate prices during the 15-year long boom that ended in 2008, and it is now their absence that is driving the downward spiral. Look more closely, though, which is what any aspiring real estate investor must do, and local circumstances can be seen to have had a major impact on the extent of the boom, and now, the extent of the bust.

It cannot be denied that the latest boom in house prices has been unprecedented in both its extent and international synchronicity, enduring even through a brief period of economic recession in the United States. From 1997 to 2005, house prices escalated by 154% in the United Kingdom, 192% in Ireland, 145% in Spain, 114% in Australia and a stunning 244% in South Africa. Even in the United States, which for years consistently denied the existence of a national housing market or the growing danger of a real estate bubble, prices rose by 73% in the same period – a boom unparalleled at any time since the end of the Second World War. Only in Hong Kong among major jurisdictions did prices fall in that period, by 43%, a testament to the importance of local market factors, although they more or less went sideways in Germany.

Despite constant warnings that the enduring boom was unsustainable, and that allowing it to continue was increasing the chances of catastrophic collapse, politicians paid no attention (they never pay attention to anything except opinion polls and the next election) and allowed the toxic mess that was the sub-prime mortgage market to reach unsustainable proportions. People will be talking about whose fault it was for decades to come, but that is not the purpose of this report, which is simply to try to gauge the prospects for the market in the years ahead of us.

You can read the rest of the feature here: http://www.investorsoffshore.com/html/specials/special_06_09_housing.html

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Kind regards,

Kate James