On a year-over-year basis, the average price of a U.K. home plummeted 10.5% to $301,500 or 164,654 British pounds in August, NBS said. Further, it was the first year-over-year double-digit decline in the U.K. since 1990.
London-based economist Mark Chandler told BloggingStocks Thursday the August U.K. housing data, "is just dreadful."
"Housing in the U.K. is becoming a bit of a 'magical mystery tour,' to borrow a phrase from The Beatles. For a month or so, we thought the declines in home prices had moderated. Apparently not," Chandler said. "Tighter lending requirements and real concern about the economy have sapped sales and it's really showing up in the price data."
U.S., U.K.: Similar housing dynamics
Further, Chandler said the United States and the United Kingdom are suffering similar housing sector dynamics. "The U.K. did not experience as big a refinancing boom as America did, but in almost every other metric the boom was the same. We had a classic overbuild of homes, a belief that double-digit price gains could not end, and of course, reckless lending," Chandler said. "Now, our inventories are swelling just like in America and prices are plunging."
Chandler said the above data "should push the Bank of England in the direction of one, perhaps two quarter-point interest rate cuts this fall." U.K. GDP was flat in Q2, and Chandler now expects the U.K. to record negative GDP of -0.2-0.5% in Q3.
"I'm confident this data will keep the Bank of England on the same page with the U.S. Federal Reserve. The housing data over the past year confirms a regional housing recession that's cut GDP on both sides of the Atlantic. The housing sector has the potential to drive both economies into a recession," Chandler said. "The task now is to get the European Central Bank on board with an accommodative interest policy to stimulate growth on the [European] continent."
Economic Analysis: More bad news from the United Kingdom. Originally thought to be less vulnerable to the housing sector's downtown than the U.S., the U.K. now appears to be just susceptible as the U.S., although Britain's foreclosure rate may be lower. Echoing economist Chandler, all three major central banks -- Fed, BOE, ECB -- should commit to an interest rate easing policy to promote a regional economic recovery. Let's hope the ECB is paying attention.
Nuclear power is on the comeback trail
Apple backs AT&T in continuing spat with Verizon
Closing Bell: The recession is still over, still... do you feel it?
Reader Comments (Page 1 of 1)
8-28-2008 @ 2:15PM
bob said...
Central bank! Same people run UK as run US. Common sense people its not a coinsidance.
8-28-2008 @ 5:41PM
william lindblad said...
No Bob, it has nothing to do with common sense. Mr. Chandler - as national history is a heavy requirement in the U.K. school system - where were you?
There a very old saying regarding the U.S. and the U.K: When one catches cold, the other starts to sneeze and this seems to hold true all the way back to 1857. The two economies are invested in each other and please note, London is regarded as the other financial capitol.
I can't see how someone claiming to be a U.K. economist could have missed, or is choosing to ignore Northern Rock, the U.K. equivalent to the U.S. Countrywide and virtually the same consequences???
The BOE had to take the same action as the U.S. Fed did with Bear Sterns - all reasons the same - mortgages!!
Since this was last November maybe it was forgotten.
( They have the same problems as we do- wait So. Spain should be next)
8-28-2008 @ 5:41PM
william lindblad said...
No Bob, it has nothing to do with common sense. Mr. Chandler - as national history is a heavy requirement in the U.K. school system - where were you?
There a very old saying regarding the U.S. and the U.K: When one catches cold, the other starts to sneeze and this seems to hold true all the way back to 1857. The two economies are invested in each other and please note, London is regarded as the other financial capitol.
I can't see how someone claiming to be a U.K. economist could have missed, or is choosing to ignore Northern Rock, the U.K. equivalent to the U.S. Countrywide and virtually the same consequences???
The BOE had to take the same action as the U.S. Fed did with Bear Sterns - all reasons the same - mortgages!!
Since this was last November maybe it was forgotten.
( They have the same problems as we do- wait So. Spain should be next)
8-29-2008 @ 3:26PM
Iridium said...
It's plain and simple economics. The young people that want to purchase a house cannot afford to do so with thier salaries.
Prices have to fall to match the buying power of those in the market to buy. The problem is that the median price still has to fall another 40% to make this a reality.
When you add mortage insurance, points, closing costs, down payment, and property taxes most prospective home buyers find that all the costs can add up to more than the actual principal paid on the housing loan. At that point the prospective buyer looks to rental properties and sees that even a $1200 per month rent is still preferable to a $900 a month mortage due to property taxes and insurance that can perhaps add $500 or more per month on top of the $900 per month mortage.
To me a 6.25% APY interest rate is criminal. Really it is outright extortion. The true cost of borrowing $200,000 over 30 years easily adds up to more than a half million dollars. In many places the home buyer will also pay nearly the total initial dollar cost of the home in property tax, $160k over 30 years at average, or more if property taxes continue to increase.
If we look at the average wage structure of the past 20 years you can see that the average real wage has barely increased. With total tax rates close to 40% of real income a person making $35k per year would use nearly every dollar earned to pay for the mortage and property tax on a $200k home. Let alone pay for energy, water, gas, and food.
The housing crisis was built through the greed of banks, mortage brokers, and real estate agents. The National Association of Realtors has conspired ever since its inception to raise the value of homes to make more money in commissions and rapidly forced the price of a home outside of the affordability index.
The boom was created by the equity built on houses sold to the boomer generation which was spent to fuel the economic expansion of the past 20 years. The only problem is that when the children of the boomers entered into the workforce there were not enough jobs that could pay a high enough salary to buy into the new world market that the previous generation created. This is what caused the bubble to burst, not bad loans.