Thursday, Feb 14, 2008
UK worse than US
FT Alphaville: Will the UK housing market follow the US?
We’ve been told that the UK housing market is in worse potential shape than its messy US counterpart. And here is the graph to prove it, courtesy of Merrill Lynch.
UK house prices - both in terms of absolute values and relative to income - have risen further in the UK than in the US over the past decade.
Posted by happyrenterz @ 01:12 PM (909 views) Add Comment
14 Comments
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1. happyrenterz said...
On other measures, the UK has an advantage.
While house building in the US more than doubled between 1990 and 2005, supply in the UK was effectively flat. In fact, in 2001 homebuilding in the UK was the lowest since the second world war and remains below the level required to keep up with demand.
2. hpwatcher said...
''house building in the US more than doubled between 1990 and 2005, supply in the UK was effectively flat.''
This is the real problem.......
3. Letthemfall said...
Supply couldn't be flat - the rate of increase in supply may have been. It's the old chestnut about demand again. Demand to buy is not the same as demand for a roof over your head. Demand to buy is driven by availability of money, and a belief in the fallacy of ever-rising prices.
4. techieman said...
Actually i dont understand that graph. It says RICS stocks/sales. Maybe im being a bit thick but does that mean stocks divided by sales, or does it mean the RICS numbers were either stocks or sales. if the former then the blue high would make sense - as no one was selling. In that way it would show adding to overall inventories if the number was >1. Maybe i'm just being a silly old hector.
5. Montesquieu said...
Predicting a 5% fall ... yes but from what point? It seems to me prices have already fallen far more than 5% since a brief peak in the early part of last year. It was a momentary spike in selling prices back then which led to a massive spike in asking prices, urged on by grasping EAs from June-July on, which were never achieved in the latter half of the year (hence current 20-30% plus drops in asking prices now by comparison to then, happening unofficially but surely to show up in the official figures by, I would guess, April-May this year).
Of course it seems inner city flats are already as popular as toxic waste, and drops in price at some of those which do come up for resale are more like 30% or more down on original sale price ....new build housing supply is a bit of a red herring if the housing that was supplied had its value pumped through the connivance of credulous, greedy BTLers and fraudulent developers. Strip the effect of that out and where did the boom go (at least since 2002-3)?
This guy's argument is just another version of the (surely now discredited) soft landing theory. Historic figures from previous booms show soft landing is a myth, the market always over-corrects after a bubble bursts, though this can take a long time (six years to stablise after 1989) and it is impossible to tell exactly where you are in the cycle while you are in it.
The biggest factors in what are now deflating the bubble (unlike the US) aren't anythying to do with the absolute amount of houses built, or interest rates - they are:
1) credit crunch effect of lower mortgage income multiples will take a whack of money out of the market and seriously hit affordability right up the chain (much more so than higher interest rates), depressing demand and therefore prices
2) the collapse of the BTL circus has removed a whack of demand which will not be taken up by FTBers until prices come down by an order of magnitude - see point 1, this fall in demand must also depress prices
3) the final nail, still on the way, will be a wave of distress sales and reposessions either from people who mortgaged at low fix rates and can't afford what they now have to pay, or latecomer BTLers getting out because they are bleeding cash and have had enough (like my landlord who after re-mortaging is topping up my rent by £600 a month while losing much more than that each month in falling value of the place, which he's had on the market now for 8 months), this substantial increase on the supply side will, when it comes, seriously depress prices.
I grant that lack of supply of new-build housing in some overcrowded areas (eg parts of London) may be a supporting factor but for the most part, in most of the country, our bubble has inflated more than America's and will soon prove to have burst just as badly.
6. doomwatch said...
no, it will be much worse, as we in the UK are more debt ridden, and now purely reliant on the financial "service" sector to keep churning.
7. paul said...
That chart is deceptive.
Stocks divided by sales. That means that the graph is not showing absolute levels of stock but stock levels relative to demand. Notice that the orange line is low until around 2006 when it shoots up. That reflects a boom in house-building relative to demand not a boom in house-building supply independent of demand.
In recent years demand for housing stock has been high in the UK, so the blue line is low for the UK. But very recently UK demand has dropped away relative to supply, so even without any new houses being built, the more recent figures may well show that blue line shooting up just like in the US.
8. paul said...
Just posted the above over at FT.com too.
9. Davros said...
Good spot Paul.
10. bystander said...
I cannot speak for the whole of the UK, but this idea that houses aren't being built in the UK is correct in one way and totally incorrect in another. On the one hand, at least in and around London and the South East there has been very little building of 'Houses', but a huge number of house conversions and new build apartment developments at steadlily increasing prices and diminishing square footage. BTL has systematically, in conjunction with lenders (very relaxed lending practices) and the government (high stamp duty and plundering of pensions), priced out all FTB's, unless they have access to massive deposits. Places to live (not grow) are being built, but at prices way beyond the 'average' punter.
11. happyrenterz said...
I think chart 4 refers to inventories of houses up for sale. So if demand is high this will stay low even if houses continue to be built.
12. techieman said...
Paul - thanks my sainity is regained! But i thought the orange line is not the same at all. i.e. the Orange line is the US supply whereas the blue line is the ratio as you describe, which is why it shot up in the early 90s.
13. techieman said...
This might help!!! http://www.statistics.gov.uk/cci/nscl.asp?ID=6908
14. techieman said...
on second thoughts the orange line shows that there are 9 months worth of supply at the presumably at the current demand level. So if demand collapsed, both of these lines would go up.So yes Paul you look to be 100% right.