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November 22, 2005
British Housing's Soft Landing, So Far
If you're trying to figure out what's likely to happen to the U.S. housing market, check out what's going on elsewhere.
Britain's housing market surged more than America's and stopped rising sooner. But prices haven't plummeted. In fact, one survey by a group called Rightmove says that asking prices are actually up 4% from last November.
Britain has at least three widely followed measures of housing prices. Rightmove says that the housing market is healthy this fall, with prices up 0.8% in November from October, after a 0.5% rise in October. The Halifax House Price Index doesn't have November yet, but says prices were flat in October from the previous month. And the Nationwide Building Society says prices were up 1.3% in October, bringing the year-over-year increase to 3.3%.
Whatever the details, it's clear that Britain's housing market hasn't exactly crashed. So the debate now is over what comes next. Pessimists argue that prices are still way too high. Here's a note from Fathom Financial Consulting that was forwarded to me by BusinessWeek's London bureau chief, Stanley Reed. (Thanks, Stanley.)
Regular readers will know that we at Fathom are concerned about the downside risks posed to the UK economy by the housing market. We remain unconvinced by arguments that suggest house price/income ratios are sustainable at current levels. As a result our central forecast is that we are in for a long period of weak house prices, with a significant risk of prolonged falls. Moreover, we continue to believe that housing is important for consumption prospects, and that a persistently weak housing market will reflect itself in weak consumer spending.
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But did the British have a plethora of IOs and ARMs and negative am loans, like we do here?
Posted by: Anonymous at November 22, 2005 01:27 PM
The Economist in a June article (I know that was 5 months ago) says that British housing was on a dangerous downward slope.
Any leveling off or increase could be nothing more than a false-top. This harkens back to mid-summer 2001 when the economy appeared to be weathering the mildest recession on record. Just two short years later it had turned into a deep recession with 24 months of job losses, stock market declines that were getting close to equalling the great depression. The only thing that resurrected it (in order of importance) was time, low interest rates, and tax breaks out the wazoo. It will take the same thing to right the housing ship, with the time component being most critical and the longest piece.
Even large ships bob a couple times before they sink.
Posted by: Wes at November 23, 2005 11:40 AM