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The latest report from the Royal Institution of Chartered Surveyors (Rics) found that the number of people looking for a home fell at the fastest rate in three years last month, while the number of unsold properties rose to its highest this year. Surveyor confidence on future sales also turned negative for the first time since way back in March 2003.

The Rics survey was one of the first to show evidence of a slowdown during the last big tremor in the housing market that kicked off in mid-2004 - which was also accompanied by rising interest rates, just as we’re seeing just now.

The Rics survey isn’t the only evidence of problems in the property market.

Repossessions are also surging – data from the Council of Mortgage Lenders (CML) shows that they hit an eight-year high in the first half of 2007, and are still climbing

However, plenty of pundits are still arguing that prices in the UK won’t fall. At worst we’ll see a soft landing. Not for us the housing carnage seen in America.

They’re wrong. There are several reasons why.

This situation will only get worse. Interest rates having risen sharply in the past year or so, which means that anyone who took out a two- or three-year fixed-rate mortgage in 2004 or 2005 is looking at paying a lot more when their deal comes to an end. The CML reckons that, in the next 18 months, around two million borrowers will see such deals expire.

This comes at a time when consumers are already struggling. Just this week, US retail giant Wal-Mart (which owns Asda over here) issued a profits warning, and said that consumers all over the world were battling rising interest rates and high petrol prices.

“It’s no secret that many customers are running out of money towards the end of the month,” said chief executive Lee Scott. “The pay cheque cycle is, in fact, more pronounced now than it ever has been.”

If you’re still sceptical about the idea that house prices in the UK can ever fall, just take a look across the Irish Sea. House prices in Ireland fell for the fourth month in a row in June, and were down 2.6% on an annual basis during the first half of the year. The falls are down to rising eurozone interest rates cutting into the amount that Irish homebuyers can borrow.

Firstly, the housing market is growing ever more unaffordable. First-time buyers are now shelling out 3.37 times their salary on average to buy a house, says the CML, the highest ever. Meanwhile, the proportion of their income going on mortgage payments has jumped to 19.3%, the highest level since 1991 – around about the time of the last property crash.

These figures are almost certainly understated too. The average house price (according to Nationwide) is nearly £185,000. Yet the average salary is – optimistically – in the region of £30,000, and far less if you take London out of the equation. So the average house costs six times the average income. It’s little wonder that the proportion of first-time buyers entering the market has fallen sharply.

The slack, of course, is being taken up by buy-to-letters. Nearly one in six mortgages taken out in the first half of this year was a buy-to-let loan. The sector now accounts for 10% of the mortgage market, from just 3% five years ago.

But none of this is sustainable. That’s because the housing market is propped up on cheap debt – and debt is becoming steadily more expensive, due to rising interest rates.

Ouch!! Thats what I like to see on a Saturday Morning!!!

Edited by mbga9pgf

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