Bbc: Uk Will Avoid Us-style Housing Pain

[jp1]

UK may avoid US-style housing pain

The once-mighty US housing market seems to be on the slide.

Optimism among US house builders has fallen to its lowest level in 15 years, the latest sign that a formerly booming market has now slowed sharply.

Sales are down and interest rates are up, classic signs of a market going into reverse.

Since the UK is seen as tending to follow the economic and cultural lead of the US, is the UK housing market now set for a serious downturn?

At first glance, the answer seems to be no.

"The US is definitely faltering, but that doesn't mean the UK will follow suit," says Howard Archer, chief UK and European economist at Global Insight.

The strength of the UK housing market has been a surprise

Howard Archer, Global Insight

"In fact, unlike many other aspects of economic activity, the UK housing market doesn't often follow the same cycle as the US.

"Housing markets are responsive to primarily local factors, such as employment and supply of property."

Surprising strength

UK house price growth has exceeded all the major forecasts. In the past month, the Halifax and Nationwide have both upped their forecasts for price growth during 2006.

"The strength of the UK housing market has been a surprise," Mr Archer said.

"I and many others thought 2006 and beyond would be flat in terms of house price growth.

"Although house prices to earnings ratios are high, mortgage repayments are still affordable for most."

For a long time now, the UK housing market has been confounding the doomsayers.

In 2003, the respected Capital Economics grabbed the headlines when its chief economist Roger Bootle stated that the UK market was overvalued and would fall by at least 20%.

Three years on, although price growth has been sluggish in some areas - most notably East Anglia and the south-west of England - there has been no price correction.

As a result, Capital Economics has now moderated its forecast. The consultancy still suggests that prices are overvalued, but that the price correction will be less dramatic - more a slow, steady fall in prices, rather than a crash.

London boost

Instead of looking to the US for signs of things to come, housing market watchers normally focus on the key London market.

Heaven knows how a first-time buyer can afford the best part of a quarter of a million pounds, but they are finding a way

Dan McLeod, London estate agent

Historically, price moves in the capital have rippled out to the rest of the UK.

And at the moment, it seems the London market is surging ahead.

Figures from the Halifax, Nationwide and Land Registry have all suggested annual house price inflation in the capital is approaching double digits.

"There is a real lack of supply in London. Properties are going very quickly and offers usually are above asking price," Dan McLeod, director at London estate agents Atkinson McLeod, told BBC News.

Mr McLeod cited the instance of a two bedroom flat in Bethnal Green, in East London, which had 42 viewings in two days and attracted 14 offers, all above asking price.

First-timers

The London market has been the star performer of 2006

It seems it is first-time buyers who are adding impetus to the market.

This is surprising, as the obituary of the first-time buyer has been penned many times over the past few years.

The theory was that they could not afford to buy and were being squeezed out by an army of buy-to-let investors.

"First-time buyers are an incredibly resilient lot. They are clubbing together with friends and relying on parents for deposits," said Mr McLeod.

"Heaven knows how a first-time buyer can afford the best part of a quarter of a million pounds, but they are finding a way."

Fionnuala Early, group economist at Nationwide, told BBC News that lenders' willingness to lend more cash to first-time buyers was also a factor.

But Ms Early added that the current round of price rises was likely to come to a halt soon.

"Interest rates are likely to rise in November and house prices can't just go up indefinitely. Lack of affordability amongst first-time buyers will bite soon."

US crash

As for a US market crash being replicated in the UK, Ms Early says it is unlikely but far from impossible.

The potential danger comes from the US housing market's effect on the wider domestic and world economy.

"Domestic factors such as employment, interest rates, income and housing supply all count," Ms Early said.

"But there is a scenario that if the US housing market was to crash, then there could be a knock-on effect on its economic performance, which in turn would negatively impact the UK and its housing market."

Good old BBC getting the counter spin in before people start to hear news from US!

Good to see thy've wheeled out their resident "economist" Howard [The Duck] Archer

Edited September 7, 2006 by jp1

[SarahBell]

What are the stages?

Denial is one?

[dredwerker]

UK may avoid US-style housing pain

Good old BBC getting the counter spin in before people start to hear news from US!

Good to see thy've wheeled out their resident "economist" Howard [The Duck] Archer

I just got sent this as a counter argument by a bearish mate. It shows how the BBC has an impact on the mainstream. It is almost self prophecising. If the BBC say we are in a rising market then people willl buy until people cant pay the IO mortgages let alone afford them.

Maybe there is a new MEW to pay your IO mortgage

[clv101]

In fact, unlike many other aspects of economic activity, the UK housing market doesn't often follow the same cycle as the US.

Rubbish!! Look at the two markets over the last 30 years - the same. Those graphs should be sent to the BBC.

Edited September 7, 2006 by clv101

[Guest Alright Jack]

Here's a recent post of mine:

Here's a US real house prices graph:

This is the UK one from the forum front page:

Here's a poor paintbox attempt to cut and stretch the US graph for the same period as the UK one:

The tracking/mirroring is self-evident to a child.

Clearly these people have no interest in looking at the truth.

Either real house prices are up spectacularly or the CPI is fiddled. Or a good measure of both.

I wonder.

[Als]

"First-time buyers are an incredibly resilient lot. They are clubbing together with friends and relying on parents for deposits," said Mr McLeod.

Mr McLeod, you're a first-class @sshole. When things do turn lying c%nts like Mr McLeod should be put on trial like in Nuremburg.

[PropertyGuru]

looking at those graphs, the 'bottom' would seem to be in 2016, at about 80,000

ouch.

[Sledgehead]

Here's a poor paintbox attempt to cut and stretch the US graph for the same period as the UK one:

Durch,

Looking at that chart one thing is clear to me : the DTP world ain't missin' your services! (sorry m8, couldn't help myself )

Edited September 7, 2006 by Sledgehead

[Keith.G]

Good effort - The parallel seems undeniable in recent years

It's probably showing that hard times for the world economy effects economies in a similar way

However we will have to wait and see the outcome of the current situation - I don't think you can just assume...

[Realistbear]

Rubbish!! Look at the two markets over the last 30 years - the same. Those graphs should be sent to the BBC.

With Gordon's brother-in-law or whatever relative it is occupying high places at the BBC, they are going to be towing the poltical line especially if Brown ascends to No. 10. With Tony a "lame duck" the news will be firmly behind the regime change.

[peemac]

The period between about '45 and '75 is interesting. It was fairly stable for quite a period, not being an economist can anyone attempt to expain to me why/how the cycle of boom/bust started towards the end of the 70s. Was it a change in public attitude to spending and debt or was it a change in lending and financial policy by the governments or a mixture of both?

[OverInflated]

The bigger they are, the harder they fall. Or something like that.

Throw a house brick a few feet in the air and then catch it and it might hurt a little, catapult it 100 feet into the air and now try and catch it. It will make a real mess

[Michael]

I just got sent this as a counter argument by a bearish mate. It shows how the BBC has an impact on the mainstream. It is almost self prophecising. If the BBC say we are in a rising market then people willl buy until people cant pay the IO mortgages let alone afford them.

Maybe there is a new MEW to pay your IO mortgage

yes, there's a thing they have in the US that is waiting to hit our shores called a ''negative amortisation mortgage''

...Its an interest-only mortgage where you dont even pay all of the interest ..It's simply rolled up and paid back later on with further interest incurred on the interest

[RichM]

"There is a real lack of supply in London. Properties are going very quickly and offers usually are above asking price," Dan McLeod, director at London estate agents Atkinson McLeod, told BBC News.

What a load of boll0cks. Does anyone ever do this? If they do they're complete morons.

[deano]

The US market is less sensitive to interest rate rises than is ours because they set the rate over mortgage term at the start. Variable rate and IO are a recent phenomena. If the US market can suffer like this, ours has the potential to be even worse. A rise in rates will remove money from the economy faster and bring the economy down faster.

[Halliron]

Mr McLeod cited the instance of a two bedroom flat in Bethnal Green, in East London, which had 42 viewings in two days and attracted 14 offers, all above asking price.

ooh! Maybe I should get my two bedroom flat in Bethnal Green valued then..

[Jason]

This article is purely to stop people worrying about a crash, nothing more, nothing less. I think the bulk of the article even misses the point (i.e. the headline). After reading the first paragraph, i would have thought it would state why prices are falling in the US, and how the fundamentals are different here. But it really says the downturn in the US won't affect us.

I do kind of agree, our market won't crash just because there's is. It will crash under it's own weight.

Really the headline should be "US housing downturn won't cause UK property crash". The rest of the article just goes on to say how wrong the doomsayers have been.

[Pooh Bear]

The period between about '45 and '75 is interesting. It was fairly stable for quite a period, not being an economist can anyone attempt to expain to me why/how the cycle of boom/bust started towards the end of the 70s. Was it a change in public attitude to spending and debt or was it a change in lending and financial policy by the governments or a mixture of both?

Guessing it's because Nixon ended the gold standard in '72. Wonder if the path towards fiat currency breakdown is booms & busts of ever increasing magnitude?