The further fall in house prices at the end of last year has made housing look more under-valued relative to income than ever before. (See Chart below.) This appears to be attracting cash buyers and investors back into the market. They have driven 70% of the increase in existing home sales seen since last July, while first-time buyers have been responsible for just 6%. Such favourable valuations mean there is plenty of scope for housing to perform well in the medium-term. But over the next year, weak demand, high supply and many more forced sales of foreclosed properties will push prices lower.
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