A study of business cycles and a few columns in Excel will quickly dispel the mathematical absurdity of the perpetual boom. Indeed, regional England has been seeing price stagnation, and even falls in some areas. Even Northern Ireland has apparently hit a wall as desperate vendors drop asking prices to shift their overvalued hovels.
Ahh but London, that paragon of all that is coveted in this bourgeois ego infected planet; Harrod's, Covent Garden, Mayfair, the West End and so on, has been stubbornly, defiantly rising in the face of all rationality. There have been two main reasons for this. The UK's favourable tax treatment of non residents has seen billions of pounds pouring in from wealthy foreigners, snapping up all the fashionable real estate. Most recently, this has been coming from the Russian oligarchy. The second factor is the absurdly oversized bonuses financial sector employees have been receiving, due to the recent credit and equities boom.
I mean, what do you do with a Christmas bonus that would make the GDP of a small African nation look like pocket money? Why, buy real estate of course!
We bush economists have been wondering though, how the recent credit market heart attack would effect the City boys. The answer came via the Financial Times:
City bonus fears hit prime market
By Jim Pickard and Sharlene Goff
Published: September 7 2007 20:16 | Last updated: September 8 2007 05:18
Property purchases are coming under pressure in the wealthier London districts after gloomy forecasts for end-of-year City bonuses.
Estate agents have reported some deals falling through, while mortgage brokers have seen a number of active buyers put their property searches on hold, for fear they will not receive the bumper payouts they had hoped for.
House prices in areas popular with City professionals, such as Mayfair, Kensington and Chelsea, rose at their slowest pace for a year last month as the impact of the credit crunch took hold. FULL STORY
While the article states that rises have merely slowed down and no falls recorded, it can't be long before there are MoM falls as the credit crisis plays out.
Now things get interesting. The signs of an impending Austrian bust are everywhere and the ball is in Bernanke's hands, though the general consensus is that he can only provide a rear-gaurd action, giving the smarties enough time to get the hell out of the way.