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The big bad bubble
May 6th 2004
From The Economist print edition


It's the government, not the Bank, that's the trouble

HOUSE prices have replaced the weather as Britain's favourite conversational standby, reckons Andrew Smithers, an independent financial analyst. Unlike Britain's temperate and unpredictable climate, however, the nation's housing market is reliably torrid. Another £9.3 billion ($16.7 billion) was borrowed against houses in March, taking the amount of outstanding mortgage debt past £800 billion. House prices were 18.9% higher in April than a year ago, according to Nationwide, a big lender. Such heavy borrowing makes high prices possible (see chart), even as high prices make heavy borrowing necessary.

With so much money at stake, every homeowner, house-hunter and buy-to-letter in Britain is an amateur meteorologist, watching for storms on the horizon. It falls to the Bank of England to regulate the weather and distribute the seasons, through its control of the cost of borrowing. On Thursday May 6th, it raised interest rates a modest quarter point to 4.25%.

Two similar rate rises, in November and February, failed to temper the rise in house prices or slow the growth of debt. But the Bank is reluctant to go further or faster. While the rest of the country worries about house prices, the Bank is required by law to focus on the prices of goods and services, not assets. Consumer prices rose just 1.1% in March, according to the consumer price index (CPI), well under the 2% target laid down by Gordon Brown, the chancellor of the exchequer. Inflation could even fall temporarily below 1% in the coming months, in which case the Bank would have to account for the aberration in an open letter to Mr Brown.

This is not the letter everyone else wants to read, however. Few care why consumer prices have slipped temporarily from the modest upward path the Bank foresaw in its last inflation forecast. Everyone instead wants to know how house prices got to where they are, whether they are going to stay there, and what will happen if they don't. Some are even starting to wonder whether the Bank's justly celebrated inflation-targeting regime, thought by many to be “state of the art”, may have slipped a little behind the curve.

To an Englishman, his home is his castle. To less confident observers, it is a castle in the air. The International Monetary Fund reckons real house prices are overvalued by up to 35%. Such valuable houses provide collateral for borrowing, and borrowing, in turn, provides strong support to the economy. In the last quarter of 2003, for example, Britons took out more than £16 billion of mortgage debt, secured against houses, which they then pumped into the broader economy.

If home prices were to stall, household borrowing may slow, or even stop. Dramatic turnarounds in saving are not without precedent. Between 1989 and 1992, for example, the household savings ratio went from 4.9% to 11.9%, after house prices crashed. This massive withdrawal of purchasing power helped turn a heady boom into a punishing bust.

Should the Bank have acted earlier to stop the bubble inflating? With hindsight, yes. A rate rise early last year, before house prices lost their moorings, might have delivered steadier growth today, with less debt and less risk of a crash. But early last year, inflation was dangerously low, and the world, including The Economist, was scared stiff of deflation.

Some people think that the Bank should be raising rates further and faster now. The problem, they argue, lies with the inflation target, which commits the Bank to fighting the dragons of the 1970s and 1980s, not those of today. The law requires it to target inflation, and nothing but inflation, so it could not respond to asset-price bubbles even if it wanted to.

But the Bank's remit is not as tight as many, including perhaps the chancellor himself, assume. Mr Brown has given the Bank a number—2%—but not a date. Normally, the Bank looks two years ahead—the approximate lag between a rate decision and its full effect on inflation. But as Mervyn King, the Bank's governor, has pointed out, the Bank could, if necessary, adopt a longer horizon: it could, for instance, raise rates to head off a bubble, even if this pushed inflation below target in the short term, if it were doing so in order to deal with a bubble that might threaten price stability in the long term.

It could, but it didn't, and Britain has a bubble. If it bursts, monetary policy is likely to be powerless to revive the economy. At that point, a well-prepared government would reach for its fiscal policy. When America's stockmarket bubble burst, a dramatic swing in its public finances—from a surplus of $113 billion in 2000 to a deficit of over $600 billion last year—helped its economy pull through. Unfortunately, Mr Brown does not have that sort of flexibility. He is already slated to borrow $35 billion this year, despite strengthening growth. If house prices deflate the economy, Mr Brown will not have the muscle to pump it up again.


Copyright © 2004 The Economist

The problem in Britain is quite simple: a growing population and not enough homes! Simple supply and demand... as the demand is exceeding the supply, prices are going up and up. Once many more houses are built (and we're building lots of houses here at the moment, just not enough) the house price bubble should start to deflate. :)

Don't worry... no one is expecting a crash as such. Although if there is to be one, we're doomed! lol!

The problem in Britain is quite simple: a growing population and not enough homes! Simple supply and demand... as the demand is exceeding the supply, prices are going up and up. Once many more houses are built (and we're building lots of houses here at the moment, just not enough) the house price bubble should start to deflate. :)

Don't worry... no one is expecting a crash as such. Although if there is to be one, we're doomed! lol!

I'm not sure it is as simple as that.. French population is growing at a higer pace - or at least, at the same pace - but house prices are not soaring.

But it is true that there is a house shortage in the South East...

we are not in the 1992 situation :
-the mortgage/income ratio is much lower
-house building is at 60-70% of what it was in the late 80's
-the rate of household creation is higher (a much more relevant index than pop increase).
-transport improvments have been very slow, increasing the pressure on inner cities.
-Planning policy guidances are getting tougher and tougher for out of town dev.
-A complex and more demanding planning system for developpers (agreements on provisions of collective infrastructures...).
All that make a crash less likely.

what hasnt change is :
the land retention from local authorities
the land retention for speculative purpuses from the developpers

You're trying too much.

you dont get half of what is written.

I don't know. I didn't read half of your post.

dont need to mention, we guess that from reading your posts.

"we" ?
Who talks like that ?
Emperors ? Insane people ?

Affabulations.

Denial.

House price rises 'unavoidable'
Andrew Oxlade, This Is Money
26 May 2004

NIMBYISM looks likely to scupper Government plans to cool the UK‘s rampant property market. A new poll from the House Builders Federation indicates that people agree Britain needs more homes but only if they are 'not in my back yard', the phrase that launched the now-familiar 'Nimby' name.


Up to 120,000 new homes are needed every year to cool the housing market, according to a Government review.


Economist Kate Barker's findings, unveiled in Gordon Brown's Budget in March, were widely accepted in the survey, with 72% of people agreeing Britain needs more homes. But nearly half, 48%, oppose building on their street.


If the new houses aren't built, a continuing boom is 'nearly inevitable', experts believe.


The new study, conducted by market research firm YouGov, found the figure rose to 59% among residents of villages or rural householders - and also among Tory voters.


Opposition falls once people believe the building will be further afield - 29% oppose building in their local area, dropping to 18% if it is the local region and 13% beyond that.


The study also revealed widespread concern about high house prices, with 67% describing them as a serious problem.


The HBF said the survey showed people were willing to accept building. 'All too often the debate about house building is dominated by a group of vocal, well-organised Nimbys. This poll shows how unrepresentative they can be,' said chief executive Rob Ashmead.


'More importantly, people want to address it - even when this means building new homes in their own area.'


He added: 'We need to move away from whether Britain needs more homes to how we provide them - in a rational, responsible and sustainable way that takes on board all the concerns that increased house building inevitably raises.'


Figures from the Office of the Deputy Prime Minister revealed 143,000 homes were built in the year to April 2004, up 4% on the previous year. Kate Barker‘s review concluded that 195,000 homes are needed each year to take UK annual house price rises, after inflation, down to 1.8%.

To bring it in line with the EU long-term average of 1.1%, a total of 245,000 would have to be built each year.


According to lenders, house prices have continued soaring despite the UK base rate rising from 3.5% to 4.25% in the past six months. The latest figures from the Halifax bank put the annual rise at 19%. Official Government figures put the rise at a more sedate 8%.


The boom has sparked a rally in the shares of housebuilders, although fears of a property market slump means bulging profits are yet to be fully reflected in the stocks, according to fund managers and analysts.


Bellway and Westbury have been among companies to recently reveal an impressive rise in earnings.

Hair-raising
Jun 3rd 2004
From The Economist print edition


Australia's housing bubble could be the first to burst. It won't be the last

SEEKING to cut through the tangle of statistical measures of Britain's housing market, the economics editor of The Economist turned to her hairdresser. Last year, he was convinced that “buy to let” was a sure way to make money. Today, finding it harder to cover his costs with rents, he has decided to sell. A sign that the residential-property boom could soon turn to bust? Maybe. Figures, not just anecdote, also suggest that in Britain and elsewhere, housing markets look ready to fall.

Two years ago, we launched a set of house-price indicators, backdated to 1975, for 13 developed economies. In our latest quarterly update we have added three more countries: New Zealand, Denmark and Switzerland. Our indicators, based on data from estate agents, lenders and official sources, show that house prices are slowing in several economies that had been looking frothy. In America average house prices rose by only 1% in the first quarter of this year, the smallest quarterly increase for six years. Prices fell in 39 of the 220 metropolitan areas covered. Even so, prices were still 7.7% higher than a year before (see table). California saw the biggest gains, with prices up by 18% in Los Angeles. But higher mortgage rates may be starting to bite: new home sales fell by 12% in April, the biggest drop for ten years.

The average house price in Britain, as measured by the Office of the Deputy Prime Minister (ODPM), rose by 7.8% in the year to March, down from an increase of 25% at the end of 2002. The ODPM index weights price changes by the value of homes in different parts of the country and is considered to be a more accurate measure than other indices which currently show prices rising much more rapidly.

Australia's housing market has weakened. According to official data, average house prices kept rising in the first quarter, leaving them 18% higher than a year before. However, figures collected by Australian Property Monitors, which are more timely because they are based on prices when contracts are signed rather than at settlement, suggest that home prices tumbled by an average of 8% in Sydney and by 13% in Melbourne in the first quarter. Anecdotal evidence suggests that the slide has continued since then. Last weekend in Sydney only one-third of properties put up for auction—the most common method of sale in Australia—were sold, signalling that prices have farther to fall.

The drop in house prices in Australian cities undermines a popular argument heard in Britain and America that even if house prices do look frothy, they are unlikely to fall unless there is a big rise in interest rates or a jump in unemployment. Neither has been needed in Australia. Interest rates have risen by only half a percentage point during the past year, to 5.25%—less than half the level during the previous housing downturn in 1990. Meanwhile, unemployment is close to a 20-year low.

Instead, the main reason for the falls in Sydney and Melbourne seems to be that first-time buyers have been priced out of the market, while demand from buy-to-let investors has dried up as net rental yields have fallen below mortgage rates. This holds lessons for Britain, where the number of first-timers has also slumped and buying-to-let is looking less profitable.

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However, not all markets are slowing down. House prices in New Zealand surged by 22% in the year to the first quarter, the biggest increase in any of the countries we track. House prices have also risen at double-digit rates in France, Italy, Spain and Ireland in the past year.

House prices have outpaced inflation everywhere in recent years except Germany and Japan, where prices continue to fall. Among our 16 countries, prices are now at record levels in relation to average wages and rents in America, Australia, Britain, Ireland, the Netherlands, New Zealand and Spain. The ratios of prices to incomes exceed their averages in the past 30 years by between 25% and 60%. A return to the long-term average could be brought about either by a fall in house prices or by a rise in wages and rents. The snag is that with wages in most countries increasing by only 3-4% a year, it would take years for inflation to erode real house prices to normal levels.

The chart to the right shows by how much prices would need to fall to get back to their long-term average, assuming that the decline takes place over four years and that wages rise at a pace similar to that in the recent past. House prices would need to fall by 10% in America, by 15% in New Zealand and by 20-30% in the other five countries.

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Need prices fall so far? Maybe not: lower real interest rates than in the past would justify an increase in the long-term ratio of house prices to wages and rents, and would therefore require a smaller fall in prices. On the other hand, when past housing booms have turned to bust, prices have typically undershot their average by 10% or more.


Copyright © 2004 The Economist

The Bank of England raised interest rates by a quarter point to 4.5%8212; the fourth rise in eight months. Despite a similar increase last month, house prices and consumer credit continue to grow.

The Economist.

We are not in the 1992 situation :
-the mortgage/income ratio is much lower
-house building is at 60-70% of what it was in the late 80's
-the rate of household creation is higher (a much more relevant index than pop increase).
-transport improvments have been very slow, increasing the pressure on inner cities.
-Planning policy guidances are getting tougher and tougher for out of town dev.
-A complex and more demanding planning system for developpers (agreements on provisions of collective infrastructures...).
All that make a crash less likely.

what hasnt change is :
the land retention from local authorities
the land retention for speculative purpuses from the developpers.

You said that already.

I'll be relieved when I see cranes busy at the site of LBT and a couple of nice projects in the City.

Personally I believe there is gonna be a house price crash within the next 2-3 years...its true theres a lack of supply but house prices are too high meaning people simply cant afford to get a house (first time buyers in the UK are at their lowest levels ever). The main force at the moment driving up house prices are speculative 'buy-to-let' investors which is unsustainable (rent rates arent keeping up with mortgage repayments as it is)...once that momentum dries up then prices will likely start to fall IMO.

During the famine in Ireland, food was available but the Irish poor could only afford potatoes (the crop that failed) so they starved/emigrated even tho there was obviously still huge demand to eat..i.e. price is more important than demand.

Course i could be wrong but whos gonna remember this post in 2-3 years eh? :tongue4: :D

whos gonna remember this post in 2-3 years eh? :tongue4: :D

All of us, except Manuel, maybe. :bash:

Blaming the rising house-prices on ignorant "nimbyism" is missing the point.

The sooner people realise that the day of 'the spacious semi and large garden' on a crowded island like Britain is no longer realistic, the better.

I don't want the whole of England (the land:people ratio is a different story in Scotland and Wales) to become one huge suburb or industrial estate...what kind of quality of life is that?

We need to be focusing on inner city urban areas, building up instead of outwards, higher density rather than sprawl.

I agree with Hamnet, short of concreting over all the most beautiful spots in England and turning it into a mass surburbia, or of trying land reclamation like the Dutch - nice idea, but probably too expensive - we need to concentrate on density, and in particular high rise living. Could the high-rise save the countryside I wonder?

yes it can. But flats dont cater for every households. Take a family of 5/6.

Sure, but families that large are in a minority; what we're seeing in the UK now is smaller groups of people, couples, single people wanting to buy their own property.

The 'housing crisis' reminds me very much of the 'fuel crisis' - too many people believing that the consumption of a finite and exhaustable resource is not only reasonable but right and as it should be. Madness.

household size reduction is an essential trend, not only in the UK but in the rest of the post industrial world. But families with children will still account for a big share of total households.

The ODPM approach is very sensible IMO. Giving incentives for recycling brownfield sites into mixed use high density development while providing space on well located greenfield site. The 60% target CANNOT be achieve in the South East, thus, development has to materialise on greenfield land. Putting to much constrains on greenfield development would prove counterproductive and fuel house prices inflation further. Market towns are efficient location for greenfield dev as ppl can rely on some intercity public transport.

A balanced approached is necessary.

House price rises cooling off
James Rossiter, Evening Standard
29 June 2004


THIS month has seen a distinct cooling-off in the country's overall housing market, as one of the UK's biggest mortgage lenders predicted a soft landing for home prices.


Sticking to its forecast of a 15% rise in the price of houses for the 12 months to December 2004, Nationwide today said June increases slowed to 0.9%, the lowest monthly increase since January and almost half the rate in May when they rose by 1.7%.

The slowdown follows the latest quarter-point increase in interest rates after the Bank of England raised its base lending rate to 4.5%, which was its fourth quarter-point rise since Mervyn King took over as Governor last July.

Warnings about an overheated housing market two weeks ago from King appear to have put a brake on this year's runaway housing market generally, according to Nationwide group economist Alex Bannister, who dismissed King's concerns however that a house price crash may be on the horizon.

Bannister said: 'While we concur with the majority of the Governor's comments, we believe that the most likely conclusion to the current housing market cycle is a long, drawn-out period of slower house-price inflation, and a low housing market cycle as opposed to a slump in prices.'

Certain areas of the country could see 'no growth in prices over the coming years', Bannister added.

He picked up King's concerns, aired a fortnight ago, that buyers should not simply assume a rise of between 5% and 10% in annual prices was the norm.

House price increases should run at about 0.75% per month for the rest of the year 'in response to higher interest rates, worsening affordability, reduced demand for buy-to-let and a downgrading of buyers' expectations of future growth', he said.

A better jobs market in London and the South East has, however, boosted the region's house prices over the past three months. For the past two years, the area has lagged behind the faster-growing North and South West.

London house prices surged 11% year-on-year from April to June, compared with a 6% rise in the first quarter, while the South East saw a 13% yearly price inflation compared with 10% between January and March.

The end of cheap money threatens local property bubbles from Seattle to Sydney. The bursts will rattle cocktail parties, but (probably) not the global economy.
BRITAIN-BECKHAM

http://msnbcmedia.msn.com/i/msnbc/Sections/Newsweek/Components/Photos/mag/040712_Issue/040702_OverseasSUB_horiz.jpg
Odd Andersen / AFP-Getty Images
The world's most expensive house: A steel magnate paid $128 million for this mansion in Kensington Palace Gardens, London

By Karen Lowry Miller
Newsweek

July 12 issue - On a bitterly divided planet, there is still one subject that gets everyone talking in unison. From Seattle to Sydney, Dublin to Dubai, people are obsessed with housing booms that threaten to burst in bubbles. Londoners still buzz about Lakshmi Mittal, the Indian steel tycoon who in April bought a mansion in Kensington Palace Gardens for $128 million, making it the most expensive house ever sold. European football stars bid up the prices on an artificial island in Dubai before the first building is complete. Middle-class Thais trade tips on securing space in one of 50 new Bangkok condo projects. Americans gossip that in the most glamorous neighborhoods of southern California, panicked status-seekers are bidding sight unseen before the good times end.

Now the end is in sight. The U.S. Federal Reserve last week raised interest rates for the first time in four years, signaling the close to an unprecedented era of cheap money. The lowest borrowing costs in four decades have fueled —spending on everything from stocks to cars, but no market has benefited as much as housing, and none will feel the pinch of tight money more sharply.

Rising house prices were fueled worldwide by the reckless prosperity of the late '90s, but also by the caution that followed. Stock prices started to collapse in 2000, and bonds began to slump in 2002, but that only accelerated the flow of money into real estate. Families burned by the markets came to see a house not only as a place to live but as a way to invest pension money—even to shield the nest egg from the risks of terror attacks. This idea of real estate as a safe haven is now firmly embedded in the global culture, says Yale economist Robert Shiller.

The question is, how safe is it? The answer depends on how fast and how far rates rise, because historically, property prices tend to plummet as rates go up. The good news is that Alan Greenspan has been telegraphing his intent to raise rates for more than a year, preparing the whole world for a soft landing. Central banks in Australia and Britain anticipated the move by a few months, and others in Europe and Asia are expected to follow suit, also gradually. The impact on the hottest bubble markets could be significant, but probably not shattering. In Hong Kong, the Ricacorp real-estate agency predicts that if Greenspan lifts rates as expected—by about 1 percent over the next year or so—monthly mortgage rates will rise from about 8.8 to 9.5 percent. That could have a dampening effect, but won't stop the rise in Hong Kong house prices, which have climbed 50 percent since last fall.

The wild card here is the impact of tight money on consumer confidence. In many countries optimists have borrowed so aggressively, often against the rising value of their homes, that household debt as a share of disposable income is at record highs, reaching more than 100 percent in the United States, Britain, South Korea and elsewhere. Even small changes in interest rates could make these debts unmanageable, depressing consumer spending and global growth. The International Monetary Fund first warned of this danger last year and repeated its concern this April. Goldman Sachs cites the housing bubble—alongside high oil prices, a slowdown in China and terror—as a "risk to global recovery." So many new homeowners have been given access to easy credit for the first time, history doesn't tell us how they will react, says Paul Donovan, global economist for UBS. This "structural break" with the past creates a high degree of uncertainty.

The impact on consumer psychology is critical because it affects the world's most successful economies. There is no global property bubble, because real estate is not a true international market in the same sense as stocks or currencies. Cash can move in an instant from dollars to euros, but not from a condo in Miami to one in Madrid. Many countries restrict foreign ownership of property, and there are all the usual closing hurdles, from financing to taxes. What unites the many potential bubbles worldwide is high demand for property in the most dynamic cities of the hottest economies—in short, the ones that are now sustaining global growth.

The property-bubble map of the world traces boom towns and regions, ignoring national boundaries. (...) In Europe, prices are sky-high in Dublin, London and Barcelona, as well as in major Dutch cities—but not in most other places. In the United States, prices have been rising as much as 60 percent faster than inflation in big cities on the East and West coasts but, with few exceptions (Denver, Chicago), not in the heartland.

Much of the debate about the impact of a housing bust focuses on how many local bubbles there are, and what happens if they all burst at once.

(...)

It's probably no accident that Anglo-Saxon countries dominate the list of potential bubble markets (chart). The United States, Australia, Britain and Ireland have all grown fast in recent years by embracing free markets, but also by adopting what is euphemistically called "flexible finance." (...)

Perhaps the most unstable property bubble is in Australia, a leading economic star in Asia. Goldman Sachs global economist Michael Buchanan figures housing prices are overvalued in the United States by 10 percent, in Britain by 15 percent and in Australia by 29 percent. (...)

In Britain, the housing frenzy of recent years is clearly ready to peter out. The Bank of England has raised rates four times since November, in part to discourage new forms of speculation like "mouseholders": cash-strapped urbanites who buy modest rural homes in which they have no intention of living, hoping to borrow against rising property values. Data for May show that mortgage lending and house-price rises are decelerating, but experts disagree sharply on what will happen next. John Wriglesworth, economist for Hometrack, a research firm, foresees a soft landing, while Roger Bootle of Capital Economics expects a "painful collapse" in prices of about 20 percent. Even if it sparks a recession, though, as economist Pelham Smithers predicts, a housing crash would mean "individual soap operas with little global impact."
(...)

With Adam Piore in New York, Craig Simons in Beijing, Avraham Karshmer and Ginanne Brownell in London, Jen Lin-Liu in Shanghai and Mac Margolis in Rio
© 2004 Newsweek, Inc.

House prices soar again
Thu 29 July, 2004 07:31



LONDON (Reuters) - House prices were back on the boil in July, up 2.1 percent on the month and 20.3 percent higher than a year ago, the fastest rate of house price inflation in more than a year, the Nationwide Building Society says.

The figures are sure to be of concern to Bank of England officials, who are keen to slow down house price inflation gradually with interest rate rises given the potential damage that a crash could wreak on the overall economy.

The data are also likely to cement even further already solid expectations for a quarter point interest rate hike to 4.75 percent next week.

July's monthly gain was the biggest since 2.7 percent in February and brought the average price of a home up 12 percent so far on the year. The sudden gains followed a month of more tepid growth in June.

July's year on year rate gain was the biggest since 21.3 percent in May 2003 near the height of the property market boom in Britain.

The re-acceleration in house price inflation in July brought the average price of a home in Britain to 154,299 pounds in July compared with 151,524 pounds in June.

Last month, the lender said prices rose 0.9 percent, their slowest monthly rate since January although prices were still up a hefty 19.1 percent compared with June 2003.

Nationwide said on Thursday it would probably put its full-year forecast for 15 percent house price inflation under review over the next couple of months given that prices are already up 12 percent on the year.

"Whilst recent anecdotal and survey evidence have suggested the housing market might be starting to slow, our own house price data accords with the recent strength of retail sales and mortgage lending," said Alex Bannister, Nationwide's Group Economist.

UK mortgage lending hit a record since comparable records began in 1997 last month, according to figures published this week from the British Bankers' Association.

The Nationwide house price figures came just hours before BoE data due later this morning that are expected to show that Britons have taken on over 1 trillion pounds in debt -- partly due to ever-larger mortgages to finance soaring house prices.

House prices are a key economic indicator in a nation where two-thirds of households own their own homes.

On Thursday BoE chief economist Charlie Bean warned that houses are overvalued and there could be a sharp correction but said that equally prices could just stagnate for a while.

Nationwide said regional house price inflation trends remain intact, with the biggest gains in Scotland, the North and Wales. Price in the South, and in Greater London has seen a modest reacceleration in price gains.

House prices fall
Thu 19 August, 2004 07:13

LONDON (Reuters) - House asking prices fell a non-seasonally adjusted 2 percent in the five weeks to mid-August, property website Rightmove says, supporting a growing view that the market may now be cooling.

Interest rates, which have risen 1.25 percentage points to 4.75 percent since November, were blamed for pushing average asking prices down to 192,335 pounds on August 14 from 196,198 pounds on July 10.

The residential property market is a key economic indicator in a country where two-thirds of people own their home.

"The Bank of England can't raise the cost of borrowing five times in nine months without something happening," Rightmove commercial director Miles Shipside said on Thursday.

"While it took much longer than people expected, it's now hitting the housing market at the sharp end -- and asking prices have been declining in each of the last five weeks."

The Bank of England, which in recent months had expressed concern about runaway house price inflation, last week said there were tentative signs of a slowdown, after a number of surveys pointed to this.

However, the Rightmove figures may exaggerate the degree of cooling in prices as August is usually a quiet period for the market. Rightmove reported house price inflation easing sharply in July and August last year, only to take off again months later.

Despite the latest falls, house prices were still up 15.7 percent year-on-year, Rightmove said.

The report adds to an interim survey Rightmove published two weeks ago, which showed prices down 0.5 percent in the three weeks to end-July.

"Despite the latest falls, house prices were still up 15.7 percent year-on-year, Rightmove said."

I hope this time the market will really cool. it is doing so gradually...soft landing on the way

You wish.

the catch is the population is growing faster than the housing stock. until this is sorted out by increasing the housing stock to match then we will continue to see rising prices and this is before you even start to look at the number of single person households. there is a reluctance on the part of the government to address this by providing more housing, they say its up to the market, but the property developers dont want to build more houses than is needed because then prices will fall and they will lose profits. you know, for the price of my house (about half a million) i could buy an amazing property in france. there has been no cooling where i live. in the last three months my property has increased by 17.6%. at current rates ill be a millionaire in a year :)

Beside offer and demand, there are other mechanisms that have an impact on the property market.

we are not in the 1992 situation :
-the mortgage/income ratio is much lower
-house building is at 60-70% of what it was in the late 80's
-the rate of household creation is higher (a much more relevant index than pop increase).
-transport improvments have been very slow, increasing the pressure on inner cities.
-Planning policy guidances are getting tougher and tougher for out of town dev.
-A complex and more demanding planning system for developpers (agreements on provisions of collective infrastructures...).
All that make a crash less likely.

what hasnt change is :
the land retention from local authorities
the land retention for speculative purpses from the developpers

Keep saying that.
It makes it all the more convincing.

we are not in the 1992 situation :
-the mortgage/income ratio is much lower
-house building is at 60-70% of what it was in the late 80's
-the rate of household creation is higher (a much more relevant index than pop increase).
-transport improvments have been very slow, increasing the pressure on inner cities.
-Planning policy guidances are getting tougher and tougher for out of town dev.
-A complex and more demanding planning system for developpers (agreements on provisions of collective infrastructures...).
All that make a crash less likely.

what hasnt change is :
the land retention from local authorities
the land retention for speculative purpses from the developpers

:laugh:

I don't think we are heading for a crash. I think we'll have a fairly soft landing. I think we'll start to see prices drop as buy to letters get out, increasing supply, and first time buyers drop out over time as the prices get
too much for them, lowering demand. These groups won't drop out en masse so I think the increases will tail off. The economy is pretty stable and I think negative equity is unlikely because low unemployment and good growth will still leave a healthy bunch of prospective buyers. I think we'll see house price inflation fall to single digits by next year as rate rises take hold and people lose confidence. Hopefully the global economy will pick up enough to offset any drop in domestic demand affecting the economy.

Fresh sign of housing market cooling
Mon 23 August, 2004 05:43

LONDON (Reuters) - House prices in England and Wales fell slightly in August, property research company Hometrack says, offering another sign the market may be cooling in the face of higher interest rates.

Hometrack said their measure of average house prices, based on agreed sales reported by estate agents, fell 0.1 percent in August - the second monthly fall in a row.

The survey follows a series of data in recent weeks that suggest five interest rate rises from the Bank of England since November were starting to tame house price inflation, which in July topped 20 percent annually by some measures.

The biggest price falls were in London and the southeast, while a dearth of new buyers has also helped create a "significant excess of supply", the non-seasonally adjusted survey said.

"Recent interest rate rises continue to take their toll on the housing market ... House prices are now very near their peak in terms of affordability and the recent housing boom now appears to be well and truly over," said John Wriglesworth, Hometrack's housing economist.

Average sales price as a percentage of asking price fell for the fourth month in a row, while the average time taken to sell properties has risen. The number of sales agreed in August was down 2.1 percent.

However, as the figures are non-seasonally adjusted, they may overstate the degree of cooling in the market. The summer is often a slow time for house sales and an easing in prices is often seen.

House prices are a key economic indicator in a country where two-thirds of households own their own home. The Bank of England had expressed concern in recent months about runaway house prices, fearing a sharp correction could hit the economy.

But the Bank, which earlier this month hiked rates 25 basis points to 4.75 percent, noted last week that there were tentative signs of a slowdown in the housing market.

Soft landing ? Hard Landing ?

Many people now reckon that British house prices could fall in the next year. According to figures published by the Office of the Deputy Prime Minister, prices in Britain rose by 13.8% in the year to July, down from 25% at the end of 2002. Other surveys suggest that prices are already edging down, and estate agents have reported an abrupt drop in interest from buyers.

The Economist.
Sep 9th 2004

from the Office for the Deputy Prime Minister (ODPM), official UK house prices stat.

"House prices leap 2.1% - official
Andrew Oxlade, This Is Money
13 September 2004



THE UK property market gathered pace over the summer, according to new Government figures, despite widespread predictions that the boom had ended.


The rate of annual house price inflation increased from 13.9% in June to 14.3% in July. Month-on-month, prices leapt 2.1% to an average £177,474."

LONDRES, 21 décembre (Reuters) - La baisse des prix de l'immobilier s'est accentuée au Royaume-Uni en novembre, atteignant son rythme le plus élevé depuis la récession du début des années 1990, montre une étude publiée mardi, confirmant ainsi le retournement du marché britannique du logement.

La Royal Institution of Chartered Surveyors (RICS) précise que le pourcentage de ses membres observant davantage de baisses de prix que de hausses est supérieur de 48 points à celui des membres signalant la tendance inverse. Son indice mensuel de référence a ainsi chuté de -40 à -48 sur le trimestre à fin novembre.

Cette dégradation, qui intervient alors que les économistes s'attendaient à une stabilisation du marché, ramène l'indice à son plus bas niveau depuis décembre 1992, une époque marquée par l'éclatement de la bulle immobilière britannique.

L'accélération de la baisse des prix immobiliers est la conséquence notamment des cinq hausses de taux opérées par la Banque d'Angleterre depuis novembre 2003, qui ont porté son principal taux d'intérêt à 4,75%. Et le marché n'exclut pas un nouveau resserrement des conditions du crédit en raison de la vigueur de l'économie.

"Les candidats à l'achat ont de plus en plus de mal à entrer sur le marché en raison de la hausse du coût du crédit, ce qui contribue à un ralentissement rapide du marché immobilier", résume la RICS.

Les ventes de biens immobiliers ont chuté de 28% en six mois et de près d'un tiers en un an, revenant à leur plus bas niveau depuis plus de neuf ans. Parallèlement, les stocks de biens à vendre recensés par la RICS ont augmenté de 9% en un an, ce qui augure d'une poursuite de la baisse des prix.

Le ratio ventes/biens en vente est retombé à 32% en novembre, au plus bas depuis le début de 1999 et sous sa moyenne de long terme de 37%, précise l'étude./MA

Where are house prices heading in 2005?

Will it be a hard or soft landing?
After five years of unstoppable price rises, the housing market has been showing its first sign of jitters.

Booming double-digit price rises at the front end of 2004 have eased off towards the end of the year. Will the market bounce back, or are house prices heading downhill?

5 PROJECTIONS SUIVENT

Halifax, the UK's biggest mortgage lender:
Will prices rise or fall during the next twelve months? Fall.

By how much? By 2% on average in the UK. After nine years of rising house prices, the average home has increased in value by 160%. Past major housing market downturns have all been caused by a combination of economic recession, steeply rising unemployment and significant rises in interest rates. "There is very little likelihood of a similar combination occurring over either in the short or medium term," the bank says.

What will happen to interest rates over the next twelve months? The Halifax predicts they will reach 4.25% by the end of 2005 (currently 4.75%).

Did it get it right in 2004? It wasn't far off. It said interest rates would be 4.5% by the end of 2004.

REGIONAL FORECASTS*
North of England: 1%
Yorks & Humber: 2%
North West: 1%
East Midlands: -2%
West Midlands: -2%
East Anglia: -3%
South West of England: -4%
South East: -5%
Greater London: -4%
Wales: 0%
N. Ireland: 4%
Scotland: 3%
*Halifax

Regional winners and losers? The north/south divide will narrow further during 2005, the bank predicts. Regions that have seen the biggest price increases over the past year - northern England, Wales and Scotland - are expected to cool down. Modest price rises in Scotland and Northern Ireland are predicted. The biggest price falls are predicted in the South East, London and the South West. Modest falls are expected in East Anglia, East Midlands and West Midlands, returning prices to levels seen in late 2003.

Hope for first-time buyers? The rate at which earnings are rising will exceed the rate at which house prices are growing. Lower interest rates during 2005 will cut mortgage costs for new borrowers.

2005 overview: "Fundamentals", namely low interest rates and high employment, remain "sound", the bank says. Lack of housing, especially in the south of England, will underpin the market.

How good is it at forecasting? Prices have risen by 12.3% so far this year, which is about half way between the two estimates it gave for 2004. In December 2003, it said prices would rise by 8%. It later revised this to 16% in June.



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Nationwide, UK's biggest building society:
Will prices rise or fall during the next twelve months? Rise.

By how much? By 2%, the society predicts. But it acknowledges there are increasing pressures on the market. Five interest rate rises have increased mortgage payments. As a proportion of take-home pay, mortgage costs have risen from 24% to 30%. "Negative media comments" have also led homeowners to dampen their expectations of future house price rises. Properties have become less affordable in parts of England, particularly the North, North West and Wales, acting as a brake on the market.

REGIONAL FORECASTS*
N. Ireland: 4%
Scotland: 3%
London: 3%
Outer Met: 3%
Outer South East: 2%
UK: 2%
South West: 2%
West Midlands: 2%
East Midlands: 2%
East Anglia: 2%
Wales: 2%
North: 2%
Yorks & Humber: 2%
North West: 2%
*Nationwide

What will happen to interest rates over the next twelve months? The society predicts they will be 5% by the end of the year, with one more quarter point rise expected in the first half of the year.

Regional winners or losers? The North, North West, Yorkshire, and Wales all experienced the fastest price rises during 2004. In 2005, they will experience the biggest slowdown in growth. House prices in these areas are the most unaffordable out of all UK regions. Prices are expected to rise fastest in Northern Ireland and slowest in the North West.

2005 overview: The key to the future of the housing market are employment prospects, the society says. These are expected to remain good. The housing market will not come to a "full-scale emergency stop" but will experience a "gentle braking".

Although it is hoping for a soft landing, it admits this could prove a "false dawn". The doubling of prices over the last four to five years means the housing market is now more highly valued and vulnerable to economic shocks or changes in "buyer sentiment" than in previous years. Uncertainty surrounding economic policy with an election around the corner may also contribute to property falls.

What is its forecasting track record? Like the Halifax, it's not bad. House prices rose by 13.2% in the first eleven months of 2003, according to Nationwide. This was slightly higher than its 2004 forecast, published last December, which predicted a rise of 9%. Following an unexpected strong start to 2004, Nationwide revised this up to 15%.


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Hometrack, a property research company

Will prices rise or fall during the next twelve months? Neither. On a national basis, prices will stay the same, the firm predicts. 2004 has been a rollercoaster year for house prices. The first six months saw continued price rises before the market turned in July. By November, Hometrack had reported a 0.6% decrease in house prices, the fifth consecutive monthly fall of the year.

HOMETRACK EXPLAINED
A guide to current prices
Data is collected from 3,500 estate agent offices from all 2,200 postcode districts in England and Wales
The estate agents report whether asking prices are rising or falling

2005 overview: Prices should continue to fall in the first few months of 2005, by up to 3%. But as the market stabilises, we should see a stronger performance in the last six months and house prices should finish the year in the same shape they started it and therefore unchanged over the year.

Hometrack says three key factors will underpin the market - household incomes are increasing by 5% a year, unemployment is continuing to fall and banks are lending more generously.



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Capital Economics, Independent economic research company
Will prices rise or fall over the next twelve months? Fall.

By how much? By 7%.

What will happen to interest rates over the next twelve months? The firm predicts rates will be 4.5% by the end of 2005.

2005 overview: With valuations now so stretched, Capital Economics believes that recent falls in house prices are likely to develop their own momentum in the months ahead. What is being currently witnessed in the market is the start of a prolonged period of falling house prices.

Although the traditionally busy New Year period could yet bring some relief to the market, any upturn is likely to prove both modest and temporary.

It believes house prices are 20% overpriced and there will be an equivalent 20% peak-to-trough drop in average house prices.

This will put the market onto a more sustainable footing.


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Royal Institution of Chartered Surveyors, an industry body
Will prices rise or fall over the next twelve months? Rise.

By how much? By 3%. It expects the first half of 2005 to be fairly weak as the impact of interest rate rises continues to put off buyers.

However, with the economy continuing to display underlying strength, and growth in new jobs, a mild rebound in the housing market is likely in the latter half of 2005.

Regional winners and losers? House prices in southern regions will marginally under perform the national average due to greater sensitivity to recent increases in interest rates.

However, the northern regions will not fare much better because of the levelling off of demand, particularly from buy-to-let investors.

ABOUT THE RICS SURVEY
Based on the government's monthly housing index (ODPM)
Figures are weighted towards high-value properties, such as London

2005 overview: The market will remain weak into the first half of 2005 as the full impact of recent interest rate rises is felt. However, the wider economic climate remains fairly good, with consumers showing few signs of being alarmed by the sharp slowdown in the housing market. Buy-to-let landlords have also failed to be panicked by recent price falls and are generally not selling their investments. Employment and incomes are expected to continue rising at a steady pace in 2005 which are likely to provide some support to housing demand and prices in the latter half of 2005 and keep prices stable.

Livre plombée par crise de l'immobilier UK.

(Cercle Finance) - Le seul évènement notable sur les marchés des changes en cette séance typique de 'trève des confiseurs', c'est le plongeon de -1% de la Livre Sterling face au Dollar et -0,9% face à l'euro.

Le facteur déclenchant de ce coup de tabac sur le 'Sterling', c'est une étude mensuelle publiée par une association représentative des agents immobiliers britanniques qui révèle un brutal ralentissement de l'activité cet automne, avec une baisse de -30% des transactions par rapport à l'année précédente à pareille époque, avec un recul des prix concernant près de 50% des biens négociés (40% faisant encore l'objet d'une hausse).

Les stocks d'invendus (maisons et appartements) progressent à plus de 9% et la situation serait techniquement la plus mauvaise observée depuis décembre 1992 quand les hausses de taux destinées alors à maintenir la Livre dans le SME avait asphyxié le marché immobilier britannique et declenché l'éclatement d'une bulle restée dans toutes les mémoires.

A 12 ans de distance, les causes ne sont pas loin d'apparaître très similaires: la hausse des taux (passés en un an de 3% à 4,75%) est de nouveau désignée comme le principale responsable de la déprime actuelle avec un renchérissement du coût du crédit survenant alors que les prix atteingnaient (et flirtent encore dans les beaux quartiers de Londres) des niveaux astronomiques.

Le marché immobilier britannique est victime d'une réalité 'à 2 vitesses' avec des acheteurs extrêmement fortunés (pays du Golfe, Russes, asiatiques...) qui s'arrachent en payant 'cash' les meilleures adresses... ce qui entraine une 'contamination' malsaine des prix de biens de moindre qualité et qui devienne quasiment inaccessibles aux acheteurs locaux, lesquels doivent pour 'suivre le marché' recourrir à un endettement massif.

Les américains ont cessé depuis un an de soutenir le marché londonnien du fait de la chute du Dollar (il est resté stable face à l'Euro ce mardi, préservant le plancher des 1,34) et la hausse du pouvoir d'achat (en Dollar) des étrangers (les mêmes qu'à Londres) provoque le même genre de phénomène de 'bulle' dans les régions et les quartiers les plus huppés de la cote Est et de la cote Ouest des USA.

Ph Béchade.

Population growth to power house prices
Jamie Milne, This is Money,
30 December 2004
LONDON and the South East of England will continue to outstrip the rest of the country in economic prosperity - and the cost of property - because of a population explosion, it has been claimed.

Figures from the Office for National Statistics show that over the last decade, house prices have increased by an average 238% in the 10 local authorities with the fastest growing populations. In the same period, prices rose by an average 195% across the country.

In contrast, the 10 areas that have suffered the most depopulation have seen more sluggish growth. Those areas have, however, still seen average rises of 123%.

According to the Halifax, which conducted the research, the data reveals a correlation between population levels and property prices. By this measure, any future increase in population, as would happen with John Prescott's plans for 128,000 new homes in the Thames Gateway by 2016, would mean continuing above-average house price rises for London and the South East.

The Halifax found that 313 local authorities in Britain have seen population increases over the last ten years, while 93 authorities have recorded a decline. At the same time 54 local authorities have experienced a population increase of more than 10% during the last ten years. The majority of these authorities are in the south and east of England.

The bank found that eight out of 10 of the top increases in population in the country were recorded in the Greater London area. The City of London saw the highest percentage increase, up 51% between 1993 and 2003. Over the period, the average property price rose by 234%.

The local authority with the sharpest rise in residents was Westminster, home to the Houses of Parliament, the West End and blue-chip residential areas such as Mayfair and Marylebone. The population of the borough increased by 45,100, while the average house price rose by 316%. Other London boroughs in the top 10 were Kensington & Chelsea, Tower Hamlets and Hammersmith & Fulham.

Regionally, Greater London has seen the fastest growth in population with a 7.9% increase over the past 10 years, a rise of 543,400. The eastern region, up 6.0%, follows the capital, with the South West third.

Populations have fallen by 2.1% in the North East and by 0.7% in Scotland and by 0.6% in the North West over the past ten years.

Outside the capital, East Cambridgeshire and Milton Keynes saw house prices rising by 208% and 211% respectively. Other top areas of growth were in Northamptonshire and Derbyshire.

Eleven local authorities have seen their population decline by more than 5% over the past ten years. Four of these authorities are in Scotland (Western Isles, Inverclyde, Dundee City, Glasgow City), three are in the North West (Liverpool, Blackpool, Salford) and two in the North East (Easington and Newcastle-upon-Tyne). By number, the largest decline in population during the past ten years has been in Glasgow City (39,600). Liverpool (29,500) and Kingston-upon-Hull (17,100) saw the next biggest falls. Glasgow saw house prices rise 99% over the decade, Liverpool 156% and Kingston-upon-Hull 113%.

Areas with the highest population growth are not necessarily the areas with the strongest economic growth, the bank says. Inner London boroughs, such as Tower Hamlets and Camden, are in the top ten areas for population growth but have above average claimant count unemployment rates.

There is also no clear link between falling population and rising unemployment. The ten areas with the largest falls in population in the past ten years have all seen a fall in their claimant count over this period. Of this ten, Newcastle-upon-Tyne and Easington - both in the North East - have seen above average falls in their respective claimant count levels of 71%.

Tim Crawford, Group Economist at Halifax, said: 'London dominates the list of areas in Britain that have seen the fastest population growth over the past ten years, reflecting the capital's ongoing economic prosperity. Major cities in northern Britain, such as Glasgow, Liverpool, Newcastle and Hull, have recorded population declines, highlighting the ongoing north/south divide.'