The Royal Institute of Chartered Surveyors (RICS) reports that the number of surveyors reporting lower valuations exceeded those reporting gains by 78.5 percentage points in March. This was up from a 65.7 percentage point gap in February.

Of course, we don’t know by how much prices are falling. But this is yet more evidence of housing market weakness. Pain in store for homeowners, then. But let’s not get too maudlin here.

Yes, some people may soon find themselves with negative equity. But for most, if they’ve borrowed sensibly, can manage their repayments and stay living in their house for a few years, they should find this is a temporary phenomenon.

But what of the wider economy? Does this news herald the Great Housing Crash that will plunge us into recession? It’s easy to see why people think that — and why they’re worried. The RICS survey began in 1978, and its findings last month were the worst since it started. Small wonder, then, that this morning’s headlines proclaimed the biggest housing slump for 30 years.

But the news can be viewed in a positive light. Or, to be more accurate, in a lesser-of-two-evils light (it’s still evil… no happy ending here, I’m afraid).

British houses are really expensive. So the question we need to ask is, do we want them to stay that expensive (and unaffordable), or do we want the market to do its job and bring prices down?

Of course, if you’re selling a house you pick the first option; if you’re buying – the second. But let’s take a step back and look beyond mere self-interest. Everyone’s worried about a housing crash, so let’s examine option number two first. What might happen?

Well, house prices fall. People whose wealth is tied up in their house are poorer… they feel poorer… and they spend less. Businesses make less money… they invest less… the economy slows down. Maybe even shrinks a little. Not a rosy outcome.

So what if (as many would love) we managed, somehow, to keep house prices where they are. Forget for a second that any effort to do so would be, in all likelihood, futile (the cat’s out of the bag on this one — buyers know sellers are scared, and prices only go one way in a buyers’ market).

To keep prices high would require diverting resources from elsewhere in the economy. It would require more new buyers to borrow up to the hilt. In other words, they’d have to hand over larger shares of their future incomes to existing homeowners, imposing a significant constraint on their future spending.

So, in the coming years, they’ll spend less than they otherwise would have had their house been cheaper when they bought it. And businesses will make less money… they’ll invest less… sound familiar?

The housing market needs to correct. Trying to cheat the system will impact our long-term growth negatively.

So neither scenario is rosy. I’d love to wrap up with something that is, but the best I can do is to tell you inflation hasn’t gone up. In February, Consumer Price Index (CPI) inflation was 2.5%. It was 2.5% again in March.

That’s kind of good news… isn’t it? I would go out and celebrate, but have you seen how much a pint costs these days?

A bunch of bankers… and Gordon Brown

The chief executives of Britain’s biggest banks are meeting Gordon Brown today to drink tea, sample the delights of the Downing Street kitchen… oh, and see if they can’t do something about this here credit crisis.

The King of Barclays, the Earl of HBOS, Lord Royal Bank of Scotland and Mr HSBC-man will all take turns bending the prime minister’s ear.

“They have a lot in common,” says Fleet Street Letter editor Brian Durrant. “Both the banks and the PM overplayed their hands in the good times. The banks now have no confidence in each other and the people have lost confidence in Mr Brown.”

Brian tells me that in a speech in east London yesterday, the prime minister said the economy remains his sole focus.

“No wonder people are worried,” he quips.

Tesco profits jump 12%

First quarter earnings season rumbles on. Tesco’s results have caused a storm in a teacup. Tesco decided not to separately publish the results of its new US subsidiary Fresh & Easy. Analysts kicked off about it, taking it as clear evidence that Fresh & Easy was struggling.

“This overlooked the fact that Fresh & Easy accounts for a marginal amount of Tesco’s net income,” says Theo Casey, our master of the level-headed analysis.

The supermarket’s pre-tax profits rose 12%. Happily the market has ignored the analysts’ wailing — at the time of writing Tesco shares are up 22p.

It’s April Bio-fools day

“It’s madness, utter, utter madness!”

Today is not a great day for Manchester’s most vocal biofuels opponent. Commodities maestro Garry White has long argued that they are a con, but it seems only the Germans are listening.

Germany has decided to ignore an EU target that would require 5% of all fuel to come from biofuels by 2010. Sadly, Britain hasn’t. The Renewable Transport Fuel Obligation becomes law today. It requires 2.5% of fuels to come from biofuels as of today — rising to 5% by 2010.

“And guess where we’re getting it from,” says Garry. “Importing it from America. In ships. I bet they don’t run on biofuel!”

Stupid though this policy may be, it’s thrown up an intriguing investment opportunity, and Garry’s going to tell you all about it.

“Let’s get ready to rumble!”

In the blue corner we have the undisputed heavyweight champion, the United States of America. Big, powerful… it has the experience… but maybe it’s a bit too long in the tooth, maybe it’s taken a few to many to the jaw in its time….

In the red corner we have the challenger, China. Lean, hungry… and with quick feet. But China’s moved up a division. Does it have enough to get the better of its opponent?

There’s a lot riding on this bout. The purse is one quarter of all US oil imports by 2015. The venue, the Gulf of Guinea.

“Let’s get ready to rumble!”, booms an excited Manraaj Singh.

China and America are squaring up to each other in the battle for Africa’s oil reserves. Who will win?

So far China’s looked impressive, but America’s just landed a big right hander — it’s sent in the troops. Manraaj has the latest from ringside, including why this new “Cold War” will actually be a good thing for Africa (and why investors would be mad to miss it).

Until tomorrow,

Ben Traynor

However, to take one example, big oil still looks cheap. I’m not convinced that oil prices above $100 a barrel will be sustainable for the rest of this year and next, as economic conditions worsen across the globe (though in the long term, peak oil and rising demand may well mean that we one day look back on $100 a barrel as a bargain).

But the truth is that the oil majors’ shares haven’t really risen with the oil price in the past year or so, as they’ve had their own worries. So at these levels, regardless of what happens to the oil price (within reason), both Shell and BP look cheap. The Chinese certainly think so – The Telegraph reports that Beijing has built up a near-1% stake in BP through a sovereign wealth fund.

While the Chinese haven’t exactly shown stupendous judgement (buying Blackstone just as the private equity bubble burst, for example), I wouldn’t want to bet against them on this one.

Turning to the wider markets…

On Friday, the FTSE 100 closed down 63 points at 5,831. Insurer Friends Provident was the main faller after US group JC Flowers said it will pull its proposed offer unless the group enters talks by the end of this week. For a full market report, see: London market report (http://www.moneyweek.com/file/45345/london-close-small-retreat-on-broad-front.html).

Across the Channel, the Paris CAC-40 lost 31 points to end the day at 4,766. And in Frankfurt, the DAX-30 fell 49 points to 6,554.

On Wall Street, US stocks edged lower as the country’s fourth-largest bank Wachovia said it would raise $7bn in capital and cut its dividend sharply, after losing $350m in its first quarter. The Dow Jones slipped 23 points to end at 12,302. The broader S&P 500 fell 4 points, to 1,328, while the tech-heavy Nasdaq slid 14 points to close at 2,275.

In Asia, Japanese stocks headed higher, with the Nikkei 225 closing 73 points higher at 12,990. Trading houses, which generate a large chunk of their profits from commodities trading, headed higher as oil hit a fresh record.

Crude oil was trading at around $112.04 this morning, after hitting a record of $112.48, while Brent spot was trading at $110.06.
Spot gold was trading at around $934 an ounce this morning. Platinum was also higher, at around $2,012, while silver was trading at $17.98.

Turning to forex, sterling was trading at 1.9711 against the dollar, and at 1.2430 against the euro. The dollar was last trading at 0.6308 against the euro and 100.93 against the Japanese yen.

And this morning, Tesco’s full-year results met City forecasts, with an 11% rise in annual profit for the 52 weeks to February 23rd. Like-for-like sales (excluding petrol) were up 3.5%, and up more than 4% in the first five weeks of the new financial year. Chief executive Terry Leahy acknowledged that the tough economy would have an impact on consumer habits, but told Reuters that Tesco tends to “grow market share in this kind of environment”.

Source: http://www.moneyweek.com/file/45379/the-outlook-for-house-prices-is-the-worst-in-30-years.html