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UK Housing Bear Market is Only Just Beginning

Fri, Jun 6 2008, 15:12 GMT
by Nadeem Walayat

Marketoracle.co.uk

The UK housing market is currently falling ahead of trend which is inline with expectations for a sharp drop in UK house prices for the quarter April to June 2008 as forecast in November 2007. The expectation is that after a further sharp fall in June, the housing market will move back towards trend during the following months targeting a fall of 7.5% for the year 2008 and 10% from the August 2007 peak to the end of 2008.

House price falls in terms of annual percentage change are falling at the extreme end of the forecast range, which confirms earlier expectations that the mainstream media will come to term the current period as a mini-crash in UK house prices. Again the expectation remains after a further deterioration in trend the rate of annualised house price falls will move back towards trend as the pace of declines slows later in the year.

Over the past 12 months, over 40 pieces of analysis on the UK housing market have been completed and archived at Nadeem Walayat, that continue to consistently confirm that the UK housing market downturn is set to continue for many years..Some of the primary drivers of the bear market are extreme over valuation, both in terms of local currency and more so in foreign exchange. The US subprime sparked credit crisis has not bottomed out and continues to result in increasing losses amongst the financial institutions that with decimated balance sheets continue to tighten lending criteria and withdraw mortgage products from the market place thus a mortgage market that can no longer support the extremely high housing market valuations. The UK consumer used to using their houses as ATM cards to finance spending are finding themselves saddled with huge amounts of debt at high interest rates, on top of this the UK is being hit by stagflationary forces of surging fuel and food prices that act as a tax on the consumer and put further strain on housing affordability and therefore are pushing the UK towards recession in 2009.

Preliminary analysis in advance of an extension to the existing forecast suggests house prices could fall by 25% in nominal terms by mid 2011 which equates to a 50% to 60% drop on an inflation adjusted real terms basis. Therefore despite the falls to date, the UK housing market is barely at the beginning of its bear market that looks set to dwarf that of the early 1990's bear market. I plan to publish in depth analysis during August 2008 that aims to give housing market participants a road map well into 2011, much as the analysis of August 07 has managed to give market participants an consistently accurate road map during the past 10 months.

Published on  Fri, Jun 6 2008, 15:16 GMT

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