U.K. House Price Decline Accelerate
U.K. house prices fell 2.5% in March, from February. This is the largest decline since 1992, and could, not coincidentally, trigger the first U.K. recession since 1992. The fluctuations is the U.K. economy has moderated significantly during the latest decade because of the declining role of the more volatile manufacturing sector and globalization and because previous slowdowns have been immediately met with accelerated monetary expansion. Now however two factors are dragging down the U.K. economy. First of all, the expanding financial sector has started to bust because of the global financial unrest. And secondly, the fact that previous slowdowns were met with monetary expansions means that increasing imbalances have been built up, with overvalued house prices, large external deficits and record debt levels, imbalances not too dissimilar to the one we've seen in America. This means that the problems are much deeper than in the past, increasing the odds for a U.K. recession sometime during 2008 or 2009.
posted by stefankarlsson at 1:28 PM
1 Comments:
There are a couple of things that Bloomberg fail to note (the housing data is based on the report from Halifax today), that can be said both on the "plus" and "minus" side on the case of a downturn:
- Not all is bleak in the housing market, the West Midlands and Wales saw the biggest declines at around 5% according to Halifax, whereas the South East was flat, and Greater London saw an increase of 1.6%.
- ...but, this is data that originates from the period _before_ the last months massive withdrawals of mortgage deals from the market took effect - in essence the effect of the dramatic tightening of lending criteria in the last 30 days have not yet impacted this data.
- Comparisons to the US, or even Sweden in terms of laxness of credit are not entirely accurate: the UK have and have had considerably higher lending criteria than Sweden and the US for mortgage lending, only in the short period of 2006-2007 could people lend more than 3.5 times their annualized gross income, and the burden of proof for this income has traditionally been rather high (in other words, subprime lending on the scale of that in the US has not been able to go on).
- The UK economy is considerably more dependent on the financial industry than any other industry, especially compared to most other countries, which makes the case for rought seas ahead for the UK quite strong.
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