Tuesday, January 11, 2005

The latest national UK housing price data from Halifax came out on Friday. While there was a surprising 1.1% rise in the seasonally-adjusted national index, there is no mistaking the downward trend. As Halifax reports,
House prices rose by 1.1% (seasonally adjusted) in December and, on a quarterly basis, by 0.1% in Quarter 4. This was the smallest quarterly gain since 2000 Quarter 2, providing further evidence that house price inflation is slowing.

House prices increased by 15.1% in 2004, but by only 2.8% in the second half, with the annual rise last year the smallest since 2001 when prices rose by 11.7%. (2002: 26.4% and 2003: 15.4%.)
More important are the figures for London. I've been following the bursting London housing bubble for a while now, and the end of the year now provides us with a better perspective. Prices in Greater London changed -0.5% in 2004:IV and that follows a -0.6% adjustment in 2004:III. From their peak, Greater London home prices are now -1.1%.

The last time London had two consecutive quarters of falling home prices was in 1995 at the uneasy end of the early 1990s bubble shakeout. The likelihood of a third quarter of falling prices is very high; the last time that happened was 1992-93, the depths of the last popping bubble.

Most economists are quite sanguine over the London market's ability to hold up under pressure. As Halifax itself says,
Housing market fundamentals remain sound � a strong labour market, historically low interest rates and a shortage of housing supply � which should curb the extent of the downturn in the housing market and result in only a 2% fall in house prices this year.
Perhaps. The 1980s run-up in prices was steeper than in the 2000s, and the drop-off more abrupt.

That being said, much depends upon the persistence of these "fundamentals" into 2005. The Independent tells us today that
High street has suffered its worst Christmas for more than a decade, according to a survey published today that confirms retailers' worst fears.

The value of sales through stores' tills in December fell 0.4 per cent compared with Christmas 2003, the British Retail Consortium said. The survey, based on sales at stores that were open a year ago, comes in the wake of profits warnings from some of Britain's best known chains.

It was the steepest fall since March 2003, when Britons were glued to their television screens during the Iraqi war, and the worst December since the BRC's records began in 1993.

The BRC said it was probably not as bad as the slumps during the recessions of the 1980s and 1990s, when sales fell up to 2 per cent. Kevin Hawkins, its director general, said: "These figures represent the worst Christmas for retailers in the last decade." He said it was a reflection of faltering consumer confidence in the face of worries over the housing market and urged the Bank of England to cut interest rates.
Watch for central bank policy to continue to be driven by the need to support asset bubbles, both in the UK and in the US.


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