Monday, December 27, 2004

More falling home price news out of the UK.
The decline in house prices is accelerating and activity in the housing market slowing, according to a new survey that will bring little festive cheer for the nation's homeowners.

The average cost of a house fell by 0.8 per cent in December, the sixth consecutive monthly fall and the worst since the housing market went into reverse in the summer, says Hometrack, the property research company.

According to Hometrack, the average property is now worth �163,500, down from a peak of �167,700 in June this year, bringing 2004 annual house price inflation to just 1.3 per cent.

John Wriglesworth, Hometrack's housing economist, said: "2004 has been a roller coaster year for house prices. The first six months saw continued price rises before the market finally turned in July. Since then, Hometrack has reported an increasing monthly fall, cumulating in a drop of 2.5 per cent since July."
Now Hometrack data is not as reliable as that from Halifax or Nationwide, but it's one more data point in an overall arrow pointing solidly downwards. One important piece of information coming from Hometrack that I've not seen elsewhere puts the Rightmove data I reported last week into focus.
Houses are now taking seven-and-a-half weeks to sell, and sellers are having to settle for, on average, 92.9 per cent of their asking price.
Hometrack's chief housing economist thinks things won't be so bad, however, forecasting a return to price inflation by the end of 2005 based on four factors:
  1. household incomes are increasing by 5 per cent per annum;
  2. unemployment is continuing to fall;
  3. lenders are increasing the multiples of income on which they will lend; and
  4. interest rates are still historically low.
Indeed, compared to the US the underlying economic foundations of the housing market in the UK look positively solid. The UK has better income growth, more jobs, and prospects for falling interest rates next year. And yet the UK market is tumbling while the US chugs merrily along.

My nose tells me that ultra-loose monetary policy in the US and East Asia is keeping the US bubbles aloft, while much tighter monetary policy in the UK plus the absence of a foreign sugar daddy are putting the squeeze on Britain.

Which suggests that if/when the state-manufactured props holding up the US bubbles are pulled out, there will be a mighty fall much worse than in the UK.


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