DREAMLAND

 

Watching the Open Golf on Sunday, I wondered what I would do with the prize money if I was ever presented with the Claret Jug, and announced as Champion Golfer of the Year.

Now those of you who have witnessed my golf will be aware that I find it almost impossible to win the monthly medal off a 10 handicap, therefore this is unlikely to be a problem that will present itself in the near future, but it is nice to dream, particularly on a warm Sunday afternoon with a nice glass of Shiraz in hand!

 

Anyway once the cheque was banked, I decided I would buy a nice pair of run-arounds, namely a Bentley Continental and Ferrari F430, 4 bed house in Florida on a golf course, 50 hours flying time on a private jet, and keep £150,000 in the bank, OR, alternatively, I could buy a three bed townhouse in Edinburgh!!

 

Mmmm…..

 

Loyal readers of this newsletter will be aware that we have commented on house prices before now, but we have noticed a few things recently that suggest the end of the huge rise in prices might well be in sight.

 

Last week the newspapers had a headline stating that house prices will rise by 50% in the next few years (if that was to happen I would have to win the US Masters as well as the Open to be able to afford that townhouse in Morningside). These are the same papers that in 1996 predicted that house prices were going to crash. For those with poor memories the average house price in the UK in 1996 was £68,000 - it is now £193,000.

 

On the radio while discussing the newspaper report, a "leading UK estate agent" said that although it is the case that first time buyers are the lifeblood of the housing market, "this time it is different". Investment guru Sir John Templeton regards these as the most dangerous words an investor can hear. Remembering the way they were used only six years ago during the Technology boom, and that those who uttered them were forced to eat them only a few months later, I regard this as a major "red flag".

 

Neil Woodford the star manager of the Invesco Perpetual Income funds has gone on the record that in his opinion house prices could fall by between 30 and 40%. A number of people have rubbished this statement, particularly as in the year since he first uttered it prices have continued to rise. Neil is never scared to go out on a limb, and as a contrarian manager he does this on a daily basis, but he is one of the managers we most respect, and in our experience he is rarely wrong.

Crashes in any market always occur when they are least expected, and it would appear, using the Press headlines as a barometer, that I am more likely to be in the final pairing at Carnoustie next year than house prices falling. However, adding these together, and factoring other data such as the historical link between average earnings and house prices, we believe that anyone considering residential property as a one way bet could well end up with severely burnt fingers in the next few years.

 

There are suggestions that Tiger Woods knows the right side of a pound coin, and if they are right I doubt we will see him traipsing round the estate agents of Edinburgh this week. No, if he has any sense he may decide to wait until after he wins The Open at St Andrews in 2010. He may well get more for his money at that time.

 

Steve Forbes

Steve
Author
Steve Forbes
Managing Director
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This letter is the personal view of Steve Forbes. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.