Wednesday, October 27, 2004

The ugly part of a popping housing bubble may be upon Britain.
The number of mortgages approved by banks fell for the fourth month in a row in September, figures have shown.

According to the British Bankers' Association (BBA), 59,905 property loans were granted last month.

This represented a 29% fall from the 81,635 new loans approved in September last year.

Meanwhile, figures from the UK government showed a rise in court actions to repossess homes, a further sign that rate rises were being felt. . . .

"I think this may be showing that some people have borrowed so much that they have become very sensitive to small changes in interest rates," said John Butler, UK economist at HSBC.
If the pinch is on in the UK, how much tighter will it feel in the bubbly US housing markets? Let's compare London with the ultra-frothy housing markets in Southern California:

Central bank interest rate changes, from recent low
UK . . . +1.25%
US . . . +0.75%

Price change for existing homes, 2000 to 2004:II
London . . . +48.6%
Los Angeles . . . +103.1%
San Diego . . . +107.8%
Orange County . . . +107.2%

Housing price-to-earnings ratio (est.), 2004
London . . . 5.5:1
Los Angeles . . . 9.3:1
San Diego . . . 10.7:1
Orange County . . . 10.4:1

So is the London housing market showing Southern California its future, but one to be repeated in spades under the palms trees? But of course, we know that long-term interest rates will never rise in the US, so we have nothing to worry about . . . and pay no attention to that massive current account deficit behind the curtain . . .

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