Remarkable headline of the day: "Euro breakup could wipe 50% off London house prices". The story is not in the Daily Mail, the usual home of obsessive house price paranoia; it's in the normally more level-headed Daily Telegraph. The dire prognostication is based on a report by a research company that suggests the foreign buying of high-end London homes that has driven prices to dizzy heights in recent years may become the market's worst enemy in the event that the Euro breaks up.
The report's authors believe that the initial impact of a Eurozone collapse would be to push prices even higher. However, they argue that once the bad news was absorbed, the incentive for the world's rich to seek a safe haven in London property would evaporate. Once that money began to leave, the top end of the London housing market would sink very quickly.*
In principle this is plausible -- "buy the rumour, sell the fact" is a well-established market axiom. However, if the Eurozone really did fall apart, the dire consequences would be likely to last for some considerable time, giving London property continuing support. It hardly seems likely that Russian and Middle Eastern billionaires would be rushing to buy homes in Paris or Madrid if the region was still in turmoil.
The really interesting thing, however, is how the Daily Mail parses this story for its readers. They love ever-rising house prices, and they love to hate the Euro. The idea that the hated Euro's survival could be a pre-requisite for more house price gains must be just too awful to contemplate.
* This is not the thesis I expected to find when I started reading the article. I assumed that the argument would be that problems in the European banking system would drive up banks' funding costs and force up mortgage rates, sending prices into reverse. This still seems to me to be a likely scenario, but the researchers here were looking at the class of buyers that doesn't need mortgages.
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