UK house prices about to fall over the cliff edge. Recession to follow ?

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A UK house price crash is looking more and more like a done deal but will a recession follow ?
Don't look now, but housing's on a cliff edge
Nick Mathiason Sunday July 17, 2005 The Observer
The whole housing industry - builders, lenders, estate agents and sector analysts - refuses to admit that the market is heading for jagged rocks. But there is compelling evidence that it is. For shareholders, the best thing to do may be to clear out a sector that has in recent years delivered strong growth.
Never have British consumers been as overextended as they are today. Interest rates may be relatively low but capital repayments on homes, loans and credit cards mean debts as a proportion of income are worse now than they were in the late Eighties - the last great house-price disaster.
Barely noticed last week was the fifth successive monthly rise in unemployment. This trend will continue. The retail downturn will be exacerbated by increasing property rents, oil prices and business rates. The result will be enforced job cuts.
House builders will have to follow suit shortly. Economists at ABN Amro reckon unemployment could go up by 500,000 in 18 months' time. And if there's one thing that sparks a house price meltdown, it's a forced seller.
After five years of record profits and whopping dividends, the chickens are coming home to roost for house builders. Deteriorating conditions in the British housing market were underlined when George Wimpey revealed at the beginning of the month that its first-half results would be 'well below' previous figures. Shares in the housebuilder fell by 2 per cent as it also admitted sales had tumbled by 17.5 per cent.
Last Thursday, Bovis - one of Britain's best-run and best-performing builders - said it might not hit its sales targets. The company was aiming for 3,150 sales in 2005. But in the first six months, it had only 1,302. Underlying house prices, based on square footage, fell 1.6 per cent.
So far, slowdowns have been blamed on over-dramatic comments by Bank of England governor Mervyn King that ushered in interest rate rises from 3.5 to the current 4.75 per cent. This year, house price drift was pinned on uncertainty in the run-up to the election.
Homeowners and builders will next month breathe a sigh of relief if interest rates fall. But if sterling continues its recent decline, as is now widely feared, interest rates will be raised to fight inflation. Whatever anyone says, house prices are on the edge of what may be a Niagara-like fall.
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Reply to
Crowley
"Crowley" wrote
Really? :-
BBC News: "Housing 'crash' looking remote"...
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Reply to
Tim
Heather Stewart, economics correspondent Sunday July 17, 2005 The Observer
The British housing market will record zero growth this year, according to data out this week. That would make it the worst performance since 1995 and reignite fears of a prolonged slowdown. Activity in the property market is already 25 per cent lower than a year ago and the Royal Institution of Chartered Surveyors, which will release a downbeat snapshot of the market this week, now believes prices will be flat over the year as a whole.
'The market's still pretty subdued,' said Milan Khatri, RICS's chief economist. 'A lot of people expected some sort of pick-up after the election, but I never really bought that argument.'
Rightmove, the property website, will also forecast completely flat prices for the year when it issues its own monthly health check of the market tomorrow. 'Estate agents are worried about the next few months, because summer's a quiet time,' said Miles Shipside, Rightmove's commercial director.
House prices have increased continuously since 1995, when the property market finally emerged from the damaging crash of the early 1990s; but after five interest rate rises, experts agree that the boom is finally over. Bank of England governor Mervyn King foreshadowed this a year ago when he warned that the stretch between average wages and house prices meant the property boom had become 'unsustainable'.
Nationwide and Halifax have reported little change in prices since the beginning of the year and analysts are nervous that the effects of the downturn are rippling through the rest of the economy as homeowners adjust to flat house prices. Retailers have so far been hardest hit but, with unemployment up in recent months, some warn of a vicious circle in which house prices could spiral even lower.
'There's some evidence now that the downturn in spending is leading to some job-shedding in those sectors most affected by consumer spending,' said Jonathan Loynes, chief UK economist at Capital Economics. 'That's the sort of pattern by which you could end up with a rather hard landing in the housing market.'
The first official estimate of GDP growth for the second quarter of the year will be released later this week, and Loynes says it is likely to echo the anaemic 0.4 per cent of the first three months of 2005, putting the economy on course for its weakest performance since 1992.
Bank of England interest rate-setters had hoped that stronger growth elsewhere would help compensate for the consumer slowdown; but with oil prices at $60 a barrel, and Britain's major trading partners in Europe stagnating, there is little optimism about the outlook. The Bank's nine-member Monetary Policy Committee is widely expected to cut interest rates in August. Minutes of its last meeting, to be released this week, are likely to reveal growing support for a cut.
'What has changed in recent weeks is that the weakness appears to have become more broad-based,' said Alan Castle, UK economist at Lehman Brothers.
In particular, there remains little sign of acceleration in business investment on a scale sufficient to offset the consumer slowdown.
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Reply to
Crowley
Looking at the economic slow down, job cuts and the unavoidable fact that we uk residents are massively in debt it is more than likely that there will be a significant house price correction over the next 12 months on top of what is already happening.
A house recently on the market for 600,000 this week cut to 499,000 in my area. All the local new build sites becoming very itchy, nothing shifting.
It's a case of hanging fire consolidating your loans nad waiting for better times.
Alan.
Reply to
physman

Absolutely. Sales volumes are collapsing, buyers are disappearing (particularly the crucial First Time Buyers) and prices are falling. Expect these falls to accelerate now that the fabled Spring Bounce (which hardly materialised this year anyway) is out of the way.
The broadsheets today are full of bearish news on house prices which should have a significant effect on all-important public sentiment towards the housing market......
The Sunday Times
July 17, 2005
The Market: One year on, still stuck for a sale With buyers thin on the ground, many sellers find themselves unable to move - unless they can make drastic price cuts, reports Graham Norwood
If you think the market slowdown has only just happened, think again. Jodie Kidd, Henry Witcomb and Skye Holland can tell you it has been going on for the past 12 months. They are among thousands of disillusioned sellers who have had their homes on the market for a year or longer without finding a buyer............
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Reply to
Crowley
First time buyers were priced out of most areas about two years ago: the house price inflation since then has primarily been funded by 'buy to let' mania.
I'm sure Brown will lean on the BoE to cut interest rates, but that's not the problem: the problem is that most houses are at least 100% overvalued in most areas at the moment. It will take at least a 50% drop in prices for first time buyers to be able to buy a reasonable house for a reasonable price, rather than go into perpetual debt to buy a crappy one-bed flat.
Mark
Reply to
mmaker
The market will only recover in volume when people make substantial price cuts but they seem to be hanging out for past prices.
I wandered round some new flats in Battersea a couple of weeks ago. On the river and smart by Wandsworth Bridge. Just one couple in the sales suite.
Reply to
MikeinCamden
The great thing about statistics is that you can use them to prove anything.
Figures for average sale prices are largely irrelevant. If five houses sold last year for 100k each, and one mansion sells this year for 500k while two of those houses sell for 20k, sale prices will go up massively, yet the people who lost 80k on those houses will be a bit miffed and the ones still in negative equity will be getting desperate.
Anecdotally, all the houses I know of that have been sold in the last few months had to cut the asking price at least 10% before they did so: and I know of several people trying to emigrate who are having to cut prices even more just to get rid of the house before they go. Another thing to consider is that sellers may be offering incentives like paying the stamp duty for the buyer, which are effectively a cut in price yet don't show up in price figures.
Mark
Reply to
mmaker
It could get worse in the future. How many Brits and Western Europeans will want to piss off as the Muslims transform the continent intro EurAbia. Middle class and wealthy Dutch are starting to go to Australia and other places by the thousands and Theo Van Gogh was butchered by a Muslim on a Amsterdam street.
The real erstate in the U.S., NZ and Australia should benefit from European white flight and possibly Canada though they also have a lot of Muslims.
Reply to
Roger Cumberbun
We've had this 'house prices scare' story doing the rounds for the last 5 years. It hasn't happened yet. The reason is that unemployment continues to fall and is at a 35 year low. The only thing which correlates with falling house prices is sharply rising unemployment and/or fast rising interest rates. Since neither of those 2 influences are happening, house prises will either be flat or dip slightly from the current levels at the worst.
Reply to
Frank Booth Snr
Most of my friends are either emigrating or thinking about it, just because they can have a much better lifestyle elsewhere. Why slave away for thirty years just to pay extortionate taxes and a mortgage on an overpriced house in a shitty area if you can buy a nice house for cash abroad and get a low-stress job to pay the bills?
Houses are by far the biggest ripoff in 'ripoff Britain' these days.
Mark
Reply to
mmaker

it'll happen eventually...everything happens eventually.....
it's like being a horse race tipster.... you give different customers every horse in the race.... and then seek endorsements from the ones you gave the winner....
Reply to
abelard


Because some people may have been talking about it for a few years doesnt mean its not gonna happen soon.
I read this week that unemployment has been rising for 5 months on the trot. Every day seems to bring a new announcement of job losses. In the article above ABN Amro predict possible job losses of 500,000 over the next few years. And that doesnt include the 2 million on 'sickness benefit' and all those in part-time McJobs.
no it isnt, but its rising anyway
the worst.
dream on.
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Reply to
Crowley

I agree. As soon as the BTL people realise that they no longer have a good deal they will exit and the prices will fall back to FTB level.
Round my (UK) home there are currently 2000 top end flats being built, they are 70% sold to BTLers on a guaranteed 7% yield.
Once they are completed and let and the purchasers find that they cannot get 1200pm on a regular basis they will look to sell. This will obvious happen slowly whilst the difference is being funded by the builder, but it won't be forever.
tim
Reply to
tim (moved to sweden)
"physman" wrote
That's a reduction of less than 17%. So the market *must* be much better now than it was in the summer of 2000 ... when I saw a house reduced from 750,000 to 550,000 (nearly 27% reduction)....
Reply to
Tim

Most people in the UK go for variable rate mortgages, so they tend to follow the Bank of England base rate. It has gone up a bit recently, but still low by historical standards. Inflation, other than house price inflation, is also pretty low, so this makes real interest rates a lot higher.
Reply to
Jonathan Bryce
"Crowley" wrote
Hmmm. Sounds very "flat" to me.
Where's the news of the imminent "fall over the cliff edge" ???
Reply to
Tim
wrote:
assume, a = b (mult by a) a^2 = ab (sbtrct b^2) a^2 - b^2 = ab - b^2 (factor out) (a-b)(a+b) = (a-b)b
(divide by (a-b))
a+b = b 2b =b 2 = 1
Reply to
curiosity

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