UK house prices slump 3.6% the fastest rate since 1983
Posted on 07 October 2010 with 2 comments from readers
In September UK house prices fell at the fastest rates since records began in the early 1980s, with the average price of a typical house falling from £168,124 in August to £162,092 last month, according to Britain’s biggest mortgage lender Halifax.
This will plunge millions of families into negative equity with the value of their homes worth less than their purchase price, and for the banks it means that provisions against bad loans will have to rise, threatening a repeat of the 2007-8 banking crisis.
Rising supply, less finance
Estate agents blame the fall on a rising supply of unsold homes and tougher mortgage lending criteria. In short too many homes at too higher price for the limited number of people with mortgage finance. ArabianMoney warned about this in June (click here).
The 3.6 per cent monthly fall in UK house prices is the biggest fall since records began in 1983 and is worse than anything seen in the past housing crash of the early 1990s.
Moreover, the outlook is for a continued contraction. House prices are way out of line with their historic ratio to incomes in the UK. This is about three compared to the recent market high of seven, implying that more than a 50 per cent fall in house prices is required to bring house prices back into line.
Earnings growth is expected to be modest at best over then next year, while taxes are certainly on the way up from next April. This is not a formula for a rising house market.
House price party over
The UK is actually late in leaving the house price party. Prices in the US have been falling in many areas since 2006 and most of Europe has seen prices declining for over a year. Only in Australia have prices stayed up with the commodities boom.
The problem is that housing markets are not quick to recover when prices have been dashed. From the low point of 1993 in the UK it took three years before meaningful price rises returned, despite much lower interest rates.
But the UK seems a long way from a recovery. The prospect now is for multi-year declines until the market returns to long-term average income multiples and some confidence comes back.
2 Comments posted by readers:
Your articles are always very well written and state what I have been saying for a very long time. The UK property ,arketis over price and is well over due for a correction. The market is following the market bubble graph to a tie.
The only way is down. With interest rates low and unable to go any lower and more job cuts in the pipe line, thing’s can only get worse.
UK house prices will not fall significantly in local currency.
Just in the last fews days the UK governent has announced QE restart and the cuts in public expenditure are to be postponed.
The market is historically overvalued, but when you have a government hell bent on hyperinflation suddenly property still feels like a very safe bet.
Ed Note: No they are deciding on the cuts now, nothing said about suspension or QE – you are misinformed.