Monday, November 22, 2004

Would that which we call a "housing crash" by any other word smell as foul?
UK house prices are "coming off their peaks" and may fall by 20% in the next three years, Barclays Bank has said.

The UK's fifth biggest lender believes consumer spending will be hit as a result but does not predict a "crash".

The prediction comes as property website Rightmove says prices will fall until the market reaches a level at which buyers feel confident again.

It found asking prices fell by 1.7% in the month to mid-November, with annual inflation falling from 13.4% to 11.6%.

Barclays, which owns former building society the Woolwich, is forecasting an 8% fall in property prices in 2005, followed by further declines in 2006 and 2007.
As far as I can tell, there is nowhere a widely accepted working definition of "housing crash". There are, of course, two components: speed and distance. Is a steep but relatively shallow fall more a "crash" than a more gradual yet deeper descent? The other way around? Barclay's forecast of falling prices for three-and-a-half years says "crash" to me even if it's not a bolt out of the blue.

But rather than speculate, let's look at past housing market busts widely discussed as "crashes" and compare them to the present situation in the UK. It is widely agreed that the year 1992 was the Year of the House Price Crash in Britain. According to the Halifax House Price Index, prices in Greater London changed -9.4% that year. This was in the midst of a multi-year descent:
1989 . . . +2.3%
1990 . . . -5.8%
1991 . . . -5.8%
1992 . . . -9.4%
1993 . . . -4.9%
1994 . . . +1.8%
From 1989 to 1993 home prices in London changed -31% and it took nine years for nominal prices to recover to their 1989 level.

Seasonally-adjusted prices in Greater London changed -0.6% in 2004:III, and all the data shows another decline in the fourth quarter. This will be the first back-to-back quarterly fall in London housing prices since 1995. The last time there were three in a row was at the tail end of the early 90s crash.

With the second half of 2004 already in the books with falling prices, and combined with Barclay's forcasting an 8% slide in 2005 plus another two years of declines after that, it's hard to see this as anything other than the beginning of a London "housing crash". But if you prefer "housing bust" I can go along with that, too.


Post a Comment

<< Home