Housing slowdown hits UK

[trendsta]

Here is the article:

http://www.bloomberg.com/apps/news?pid=20601085&sid=a6uLRCzBxDf4&refer=news

Nov. 13 (Bloomberg) -- The Royal Institution of Chartered Surveyors index of U.K. house prices dropped to the lowest level in more than two years in October after rising mortgage rates deterred buyers.

The gauge, which is the difference in the percentage of real- estate agents and surveyors saying prices fell and those reporting increases, declined to minus 22, London-based RICS said today. That's the worst reading since July 2005. RICS represents about 150,000 property surveyors. In London, one of only two regions where values rose, price gains were the slowest in a year.

Five Bank of England interest-rate increases and a jump in credit costs that sparked a run on a U.K. mortgage lender are curbing demand for homes. After tripling in the past decade, British house prices may fall next year because of a ``toxic mix'' of higher lending rates and record consumer debt, according to Citigroup Inc. economist Michael Saunders.

``The slowdown is here to stay,'' said David Stubbs, an economist at RICS, in a television interview. ``We're facing a weak market for the next six months and prices are likely to be flat through 2008.''

Today's report adds to evidence that the property market is cooling. HBOS Plc, the nation's biggest mortgage lender, and research company Hometrack Ltd., both said property prices are falling. Nationwide Building Society and Rightmove Plc say prices are still rising.

Faster Inflation

The stock of unsold property on estate agents' books rose 8.8 percent, the biggest monthly gain since May 2003, RICS said. Newly agreed sales declined the most since that component was first measured in 1999.

The Bank of England may have limited scope to cushion homebuyers by cutting rates. Britain's inflation rate jumped above the central bank's 2 percent target to a four-month high in October, the statistics office said today, climbing to 2.1 percent. Governor Mervyn King will announce revised economic growth and inflation forecasts tomorrow.

RICS said confidence in future price gains fell to the lowest since April 2003. Nine of the 11 regions in the surveys showed declines in this month's price index, led by East Anglia and the West Midlands. In London, the seasonally adjusted index dropped to 4 in October from 19 the previous month.

Hometrack, which on Oct. 29 said prices fell for the first time in two years last month, expects the average value of a home to climb 1 percent next year after a 4.5 percent gain in 2007. RICS' gauge of buyers getting in touch with real estate agents to browse properties fell for an 11th month.

`Signs of Cooling'

``The market is now showing signs of cooling,'' said James Wilson, a surveyor in Knightsbridge, a London neighborhood that's home to the Harrods department store. ``Fewer applicants are registering, and properties are taking longer to sell.''

Luxury-home prices in London rose last month at the slowest pace since July 2005 as the prospect of job cuts and smaller bonuses deterred investment bankers and other buyers, estate agent Knight Frank LLC said on Nov. 5.

A shortage of housing may limit a slowdown. Construction of new homes stagnated at 148,000 units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968, government figures show.

The economy also is on course to grow at the fastest pace in three years in 2007, and unemployment is at a 2 1/2 year low.

Price Decline

``A material fall in prices would require a weaker labor market prompting forced sales,'' said Ian Perry, a spokesman for RICS.

Still, consumers in Britain are shouldering a record 1.4 trillion pounds ($2.9 trillion) in debt and attempting to cope with interest rates at the highest since 2001. The U.S. subprime mortgage slump has also prompted banks to lift mortgage rates, further hurting affordability.

Mortgages with a fixed-rate for two years, the most popular type in the U.K., cost an average 6.37 percent in interest last month compared with 5.41 percent a year ago, according to Bank of England data.

Prime Minister Gordon Brown's government put house prices at the center of its agenda and plans to publish legislation outlining a building program on Nov. 16. Chancellor of the Exchequer Alistair Darling cut his economic growth forecasts on Oct. 9, citing the impact of the credit rout.

The Treasury now expects growth between 2 percent and 2.5 percent next year compared with 3 percent or more in 2007. In March, the government was expecting gains of up to 3 percent next year.

 

[yieldmatters]

Interesting. I read an article (in the economist I think) about credit being tightened in the UK and the USA - banks are not so confident to lend aggressively. I am convinced this impacts house prices as buyers at the margin simply have less cash to throw at property.

 

[Kennethkohsg]

Dear All,

1. It is interesting to note that by tightening the available credit, the Bank of England was able to cool down the UK housing market, in the absence of an interest rate increase.

2. Perhaps, likewise, the RBA Australia should seriously consider using this measure to effectively and truly tame down the fast-growing core inflationary pressures, which are existing within the local Australian Economy.

3. However, one may argue otherwise because of the present excess housing stocks available, the UK housing market has been able to cool down by itself, given the free market interplay of its prevailing supply and demand forces.

4. Consequently, it is argued that existing market conditions in UK and in Australia are fundamentally different at this point in time. Thus, no meaningful comparision can be effectively made.

5. Despite all this, now that the US housing market is presently experiencing one of its worst housing slump in history, the UK housing market is similarly cooling down by itself now, with some price declines in the absence of no interest rate increase, I wonder what will truly happen to the Australian housing market next, in the near future?

6. For your kind update and further comments/discussion, please.

7. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Interesting. I read an article (in the economist I think) about credit being tightened in the UK and the USA - banks are not so confident to lend aggressively. I am convinced this impacts house prices as buyers at the margin simply have less cash to throw at property.

*********************
Dear YM,

1. Given the recent global credit crunch crisis, which is still in the process of unfolding itself fully yet at this point in time, I personally believe that it is both prudent and the likley natural logical consequence for many central banks around the world to consider tightening up on its available easy credit and "cheap loans" lending policies if they have still not done so. This is to avoid similar sub-prime housing mortgage related problems, from occuring in their own respective countries.

2. Consequently, I believe that the both the Bank of England and the American Federal Reserve Bank are doing the right things by seeking to tighten up on their easy credit and lending policies, given the recent Credit Crunch Crisis.

3. Yet, at the same time, I am personally surprised that the normally pro-active RBA-Australia does not appear to do doing so presently.

4. This is despite that RBA-Australia, openly acknowledged that the average Australian households has become increasingly vulnerable to any economic and/or financial crisis now than before because of the present higher household debt levels in Australia. This is especially so with the present ongoing US housing slump and the global credit crunch crisis occuring now.

4. Furthermore, in its latest attempt to further cool down the housing markets and curb down both the housing inflation and the other types of inflation within Australia, RBA-Asutralia has sought to "pro-actively" increase its interest rate again this month, instead.

5. Consequently, I am personally skeptical whether the latest round of 0.25% interest rate increase, is able to effectively curb down the underlying inflationary pressures down to its targetted 2%-3% level, as intended by the RBA-Australia.

6. After all, a "blunt" fiscal tool, like the interest rate increase, has similarly failed to produce this required desired effect as intended by RBA-Australia, as far as its previous 5 interest rate increases have shown themselves to be, in the past.

7. For your further comments and discussion, please.

8. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

***********************

1. It is interesting to note that a housing shortage does not automatically lead to an price increase, as the Classical Economics Theory, will normally tend to suggest.

2. Instead, this housing shortage may reportedly seek to limit the UK housing market slowdown, in this case.

3. Similar reports were also made in the past, concerning the new housing stock shortage and its housing prices for the Sydney property market over the past few years.

4. For your further comments and discussion, please.

5. Thank you

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Five Bank of England interest-rate increases and a jump in credit costs that sparked a run on a U.K. mortgage lender are curbing demand for homes. After tripling in the past decade, British house prices may fall next year because of a ``toxic mix'' of higher lending rates and record consumer debt, according to Citigroup Inc. economist Michael Saunders.

``The slowdown is here to stay,'' said David Stubbs, an economist at RICS, in a television interview. ``We're facing a weak market for the next six months and prices are likely to be flat through 2008.''

.

&&&&&&&&&&&&&&&&&&&&&&&&&

1. Will similar scenario happens to the various Australian housing markets in the immediate near future?

2. Specifically, the Perth property market is reported to be "levelling off" now.

3. Given the similar wider economic conditions as generally experienced in the Australian and the UK housing markets, is the Perth Property Market, likely to further "slow-down" with more price decline to be expected soon?

4. For your further comments and discussion, please.

5. Thank you.


Cheers,
Kenneth KOH

 

[coolie21]

I read on the BBC site yesterday that max lend for 'buy to let' in the UK now was 70% AND the banks were requiring that rent covered 125% of mortgage interest

Here's the link: http://news.bbc.co.uk/1/hi/business/7083446.stm

 

[yieldmatters]

Kenneth - I think the tightening of credit isn't at the cashrate level (the USA dropped theirs 0.75% so far). It is at the mortgage market level - banks and others are not as keen to lend as they used to be as they may be left with a declining asset if the borrower defaults. That is a very different situation to a rising asset where a default is not such a big deal.

 

[Kennethkohsg]

Kenneth

It is at the mortgage market level - banks and others are not as keen to lend as they used to be as they may be left with a declining asset if the borrower defaults. That is a very different situation to a rising asset where a default is not such a big deal.

*********************
Dear YM,

This is similar to the existing market situation in the Sydney proeprty market in particular the risks of have an declining assets with a negative equity is equally high in its Western and South Western suburbs since 2004, isn't it?

Cheers,
Kenneth KOH

 

[Kennethkohsg]

I read on the BBC site yesterday that max lend for 'buy to let' in the UK now was 70% AND the banks were requiring that rent covered 125% of mortgage interest

Here's the link: http://news.bbc.co.uk/1/hi/business/7083446.stm

***************************

Imagine if the same lending practices were to be implemented in Australia now, I have no doubt that most of the existing investors would similarly be exiting out of the Australian housing market en masse, not long after that.

Consequently, the present "levelling off" Perth Property Market is likely to slow down further and more price decline likely to be seen in the near future.

Likewise, the full recovery for the Sydney Property Market, in particular for its Western and South Western suburbs, is likely to be further delayed indefinitely too.

Cheers,
Kenneth KOH

 

[trendsta]

Its difficult to gauge the relation between UK and Australian prop market. I had simply copied the article to provide a view of what is happening in other global property markets.

As you correctly pointed out there are similarities and also some differences between UK and Australia. My view of markets is a simple one - supply and demand:

In terms of supply, housing shortage is often touted as one of the reason aust property is still strong. You would expect that with housing in all cities at or near their highest levels large developers would be clamouring to provide supply at these levels.. but for whatever reason/s i am told that hasnt happened across the WHOLE of Australia.. and supply remains an issue in all major Australian capital cities ... maybe all the builders are now mining??

In terms of demand, its more complex. But to keep it simple there is demand from owner occuipers and investors. IR rises, rising credit costs, higher oil/food/energy/water all are negatives for demand. There are maybe some positives to demand too, but i cant think of any , for this point in time.

So it apeears that maybe demand is lower and supply is also lower causing proces to hover as a whole..

So a marked slowdown in OZ will require more supply or less demand .. Labour I am told has a habit of going into deficits and thus causing higher IR.. I finally understand how that works ... so with higher CPI, rates, and labour deficits we may have the ingredients to slow demand even more.. The more extreme is recession startng with US, causing slowdown in China etc, and higher unemployment.. As to the increase in supply, I am baffled .. others may have accurate views ..

 

[myla]

hello,

many of the melb developrs are building boutique joints, with a minimal 1-2 bed style accomodation aimed at investors

the other thing there is no labour to build like around 99-03, seriously, there is no way enough suitable labour to construct, also with a huge amount going into the reno market causing an issue

on a side note: have friend who set up company doing "buy to let" in UK, went massive, offices and house in Mayfair, this stuff is very simialr to Henry Kaye style, note just recently sold up and back in Aus

thankyou

myla

 

[buzzlightyear]

I read on the BBC site yesterday that max lend for 'buy to let' in the UK now was 70% AND the banks were requiring that rent covered 125% of mortgage interest

Here's the link: http://news.bbc.co.uk/1/hi/business/7083446.stm

I have looked at Barclays Bank website and you can borrow up to 85% for buy-to-let properties (105% interest rate cover). Interestingly you can borrow up to 95% for a home purchase. What's to stop you buying a property as a PPOR, then later rent it out later.