Thursday, January 27, 2005

Following the deflating (bursting?) London housing bubble.
Fears of A housing market crash rose yesterday after the Bank of England issued an unexpected warning of an asset price correction and new figures revealed the first rise in mortgage arrears for six years.

Economists on the Bank's Monetary Policy Committee are worried that investors' increasingly desperate search for profit in a low inflation environment was forcing them to take on more risk.

"The committee judged that there might be some downside risk of an asset price correction," the minutes of their January meeting showed. . . .

Short-term arrears of between three and six months rose from 49,720 in the first half of last year to 53,960 in the second half - an 8 per cent increase.

The CML said the numbers were "extremely low" by historic standards - there were 190,000 in the first half of 1994 - but admitted it pointed to problems ahead.

"With short-term arrears increasing, we are bound to see a rise in longer-term arrears and repossessions following behind," Michael Coogan, its director general, said.
Of course, it is markedly unfair to compare the beginning of a bubble deflation to its nadir, which is what CML is doing here. The trend, of course, is what matters. Back in the late 1980s, the declining arrears trend bottomed out in the second half of 1988 and began rising in the first half of 1989; the housing price bubble peaked in mid-1989.

To bolster the turnaround case, Hometrack is reporting that national UK home prices fell yet again in January. Asking prices are now down nationally to �162,800, -2.9% since June. The actual fall may be more steep in that Hometrack data also shows that the price achieved as a percentage of the asking price is down as well, from 96% at the peak of the bubble to just under 93% in December (Hometrack won't put their January data up on their website yet -- only to paying newspapers for now).

Regarding the arrears data, it is always important to say, "one month (or in this case, one six-month observation) does not a trend make". The lesson is, however, keep your eyes peeled.

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