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Jonathan Davis From Housepricrash On The Bbc

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This is an article found on the BBC website. Good bear food.


Whether the UK housing market booms or goes bust is as about as hot a conversation topic as you can get.

No surprise really.

After all, for millions of Britons their property is not just a roof over their heads it is a passport to financial security and even a pension.

Anything that endangers the seemingly never-ending rise in house prices is always news.

For the past decade - as far as property owners are concerned - all has been sunny.

On Tuesday, the Office of National Statistics (ONS) said that UK house prices had risen by 204% in the past decade compared with a 94% increase in average wages.

In the past year alone, prices according to both Halifax and Nationwide have risen by about 10%, way above most analyst forecasts.

In the past 10 years a global bubble in house prices has developed and it is now bursting

Jonathan Davis, chartered financial planner

How majority of UK towns are now unaffordable

Global bubble?

But there is a doomsday scenario; if you are a homeowner with a large mortgage that could well be beginning to play itself out.

Some suggest the long-predicted crash could finally be on the cards.

"In the past 10 years a global bubble in house prices has developed and it is now bursting," says Jonathan Davis, a chartered financial planner and spokesman for website housepricecrash.co.uk.

"In the US, we see a credit crunch as lenders restrict the money they lend to mortgage borrowers.

"If lines of credit are closed off people are not able to afford high house prices. This ultimately leads to falling demand and falling prices.

"The result? Prices are falling faster in the US than at anytime in history.

"This is already slowing US growth and will inevitably hit the UK as well. When the US catches a cold we tend to catch one as well," Mr Davis adds.

Credit crunch

At the root of Mr Davis's view that the US is experiencing a credit crunch is the crisis in the sub-prime lending market.

The idea that they (health workers) can get on the property ladder is a non-starter for many

Anne Mitchell, Unison

Where next for house prices?

Send us your comments

In short, during the past few years, US banks have been busy lending increasing sums to people with poor credit ratings. Now these people are struggling and so are the lenders.

The wider US housing market is being damaged because people in debt difficulty are trying to offload their property fast and there are simply too few buyers able to get the money together to buy this glut of homes.

Increasing supply plus lower demand means falling prices.

"Things are set to get worse in the US housing market before they get better," says Ray Boulger, technical director of mortgage broker Charcol.

But what about the UK? Could there be a knock-on effect? Could we catch a cold as Mr Davis says?

"Certainly if the US economy goes into reverse and there are job losses, world economic growth and that of the UK could be affected. This could, ultimately, have a dampening effect on the UK housing market," Mr Boulger says.

"But there are lots of differences between the US and the UK, which makes a crash unlikely," he adds.

There has been some loosening of mortgage lending criteria (in the UK) but nothing like the US

Ray Boulger, Charcol

Mr Boulger points to a lack of housing supply in the UK - this is, after all, a small, densely-populated island - bolstering prices.

In addition, Mr Boulger says that UK lenders have been more prudent than their US counterparts.

"There has been some loosening of mortgage lending criteria but nothing like the US.

"People are able to get 100% mortgages or borrow four or five times their income but lenders have not offered the two together.

"If they have taken a risk in lending to someone they have looked to hedge that risk elsewhere. For example, a bank may lend five-times someone's salary but they ask that the borrower has a whopping deposit as a cushion against negative equity," Mr Boulger said.

Housing shortage?

Capital Economics, which in 2003 famously predicted that the UK was headed for house price falls of up to 20%, broadly agrees with Mr Boulger's upbeat analysis.

"It gets to a stage when you can't keep saying a crash will happen while prices keep on rising," Ed Stansfield, analyst at Capital Economics, admits.

"As a country we are not building enough houses for the number of new households which are forming, also we have had a very benign economic backdrop of low interest rates, inflation and high employment.

"Interest rates would have to head above 7% (from the current 5.25%) for a significant number of people to start to really struggle with their mortgage and I can not see any factor which could prompt such a rise in rates," Mr Stansfield says.

But the upward move in prices can not go on and on, Mr Stansfield adds.

"I have read some predictions that prices will keep rising for the next decade or more because of lack of supply.

"However, large sections of society are already priced out of the market and at some point people are going to find half of their income going on mortgage payments and they will rightly ask themselves what is the point?"

Crunch time

Capital Economics is predicting slow price growth over the next few years but with the caution that any significant rise in interest rates could lead to a crash.

And, crucially, because inflation and wage growth is low, people's mortgage debt is being reduced far more slowly than was the case in the 1970s and 1980s.

This means that mortgage repayments will be swallowing a significant proportion of people's incomes far into the future.

"Housing market watchers always focus on the next few months, no one is looking at five years from now?

"But we are now burdened by debt for many years. If the economy worsens, a credit crunch will occur," Mr Davis says.

"I can see the current positive sentiment about housing doing a 180 degree turn.

"Buy-to-let investors will bail out or find their property taken off them. Overall house prices will fall and the number of repossessions will eclipse what occurred in the recession of then early 1990s," Mr Davis adds.

Now that would be a conversation stopper.

Source: http://news.bbc.co.uk/1/hi/business/6549299.stm

Edited by time

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UK house prices had risen by 204% in the past decade compared with a 94% increase in average wages.

Makes sense as the difference is 54% that is more or less how much UK property is overvalued. The biggest housing bubble of all time will pop after the removal of cheap-easy credit & speculation.

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