UK house prices 50% overvalued. Bubble is about to burst

Crowley · 2005-08-08T21:06:42+00:00

Food for thought in todays Guardian........... Hold on, this could get bumpy Ashley Seager Monday August 8, 2005 The Guardian You may think that the housing market, whose foundations having been looking increasingly shaky over the past year, would be shored up by last week's interest rate cut from the Bank of England. After all, you may say, rising interest rates did for the housing market last year and so the cut, the first for two years, must have the opposite effect. If money is cheaper, people might borrow more and start buying property again. That is a dangerously complacent view. The house price bubble, the biggest this country has ever seen, was pricked last summer and has been losing air ever since. But it has barely begun to deflate in a serious fashion. It seems unlikely that the puncture can be patched up by an interest rate cut or two, let alone the bubble re-inflated, as some estate agents hope. Let's be clear about this. House prices in Britain were massively overvalued, by as much as 50%, last summer when they finally stopped rising. As they have stood more or less still since then, the extent of that overvaluation has barely fallen. Prices had gone up 200% in the previous seven years even though inflation more generally was running at around 2.5% a year. As a result house prices are still around six times average salaries, compared to a long-term average of 3.5 times. If prices were to stand still, it would take at least eight years for the long-term relationship to be re-established. It is hard to see that happening. Since Mervyn King, the Bank of England's governor, warned in June last year that there was a danger of prices falling, prices have either been static or, in the case of London and the south-east, have begun to fall. Sellers are clinging to hopes of high prices, but are only selling if they drop their price. And buyers are reluctant to buy now because they scent that the ball is back in their court and also because prices are still very...

Aug 08, 2005 21 Replies

Rate this thread:

physman 20 years ago

Hey Tumbleweed, read your last post and it certainly comes across optimistic, (" if ever"), with a splash of sarcasm which I can assume is directed at me.

Cheers for the site very good source.

Vote

Tumbleweed 20 years ago

Don't understand why you think my post was optimistic. FWIW I'd be better off if house prices fell by 50%. So you might have said I was being pessimistic, if you knew my financial position.

Or does 'house prices will not fall' always equate with 'optimism' to you?

Sincere apologies for the sarcasm, I should have put a smiley in there.

Vote

Join the Discussion

Have something to add? Share your thoughts — no account required.

Didn't find your answer?

Ask the community — no account required