Post by Steve Gardner on Nov 28, 2007 0:37:10 GMT
Source: FT
By David Oakley and Chris Giles
Published: November 25 2007 22:38 | Last updated: November 25 2007 22:38
The City is betting on UK house prices falling by 7 per cent next year in new tradeable derivatives contracts, which some bankers say is the best indicator of the market’s direction as millions of pounds are riding on the outcome.
These future housing contracts, which were published for the first time this year and have seen a surge in trading volumes in the past few months, are predicting much bigger falls in property values than other non-tradeable forecasts.
The derivatives contracts are also pricing much bigger falls next year than they were a month ago, when they were predicting a 2 per cent decline.
Peter Sceats, a derivatives broker at TFS Property, said: “Bankers, hedge funds and property companies are putting their money where their mouth is and that makes these prices more reliable than economic forecasts in many respects.
“Bankers who are making these trades can get it wrong, but with contracts worth up to £100m it makes it more important that they get it right. It is interesting that they are more gloomy, but maybe that is because there is money involved.”
The price predictions, which are based on the Halifax house-price index, are considered reliable a year out.
The futures contracts predict the average house price in the UK will fall from £197,817 to £183,970 in a year’s time. The contracts predict prices will remain stable around this level for the next five years before they start rising again.
The UK residential property derivatives market only began to see serious trading volumes this year as more banks, investment funds and developers sought to speculate or hedge their exposure to property. Brokers say last month was their busiest ever. The market is estimated to be worth about £4bn, a threefold increase on this time last year, according to TFS Property.
Copyright The Financial Times Limited 2007
By David Oakley and Chris Giles
Published: November 25 2007 22:38 | Last updated: November 25 2007 22:38
The City is betting on UK house prices falling by 7 per cent next year in new tradeable derivatives contracts, which some bankers say is the best indicator of the market’s direction as millions of pounds are riding on the outcome.
These future housing contracts, which were published for the first time this year and have seen a surge in trading volumes in the past few months, are predicting much bigger falls in property values than other non-tradeable forecasts.
The derivatives contracts are also pricing much bigger falls next year than they were a month ago, when they were predicting a 2 per cent decline.
Peter Sceats, a derivatives broker at TFS Property, said: “Bankers, hedge funds and property companies are putting their money where their mouth is and that makes these prices more reliable than economic forecasts in many respects.
“Bankers who are making these trades can get it wrong, but with contracts worth up to £100m it makes it more important that they get it right. It is interesting that they are more gloomy, but maybe that is because there is money involved.”
The price predictions, which are based on the Halifax house-price index, are considered reliable a year out.
The futures contracts predict the average house price in the UK will fall from £197,817 to £183,970 in a year’s time. The contracts predict prices will remain stable around this level for the next five years before they start rising again.
The UK residential property derivatives market only began to see serious trading volumes this year as more banks, investment funds and developers sought to speculate or hedge their exposure to property. Brokers say last month was their busiest ever. The market is estimated to be worth about £4bn, a threefold increase on this time last year, according to TFS Property.
Copyright The Financial Times Limited 2007
