Pneumonia or the sniffles?
Pneumonia or the sniffles?
When America sneezes, Britain catches a cold. When America has a cold, Britain goes down with pneumonia. That's the traditional viewpoint, even though most commentators in the UK are saying that the housing downturn will be nothing like as bad as it is in the US. But then they were still talking about 0% house price change for this year as recently as mid-March (yes, Nationwide economists, I'm talking about you).
Even odder is how many UK commentators are still talking about 9% or so house price falls this year, when most agents I speak to tell me that falls are already a lot more than this. Possibly the reason is that the only properties that are selling are those with the X-factor, and buyers are purchasing closer to the asking price. In other words, the statistics do not and in fact cannot reflect the large numbers of properties that simply aren't selling.
"It's worse than the early nineties," one genuinely leading agent told me. That was back in February this year. But it was in February last year, 2007, that another high profile agent, Connells, recognised that the market was changing and started to adjust its own business model. Then, of course, there was Jon Hunt who sold Foxtons last spring, calling the market at the top, and any number of landlords who had already seen the writing on the wall and had spent the previous six months selling their properties.
So, just how bad is it in the US? And how bad could it, conceivably, get here?
Well, rental demand in America has reached record levels, but the property market is worsening for both home owners and tenants because prices are falling for the former and rising for the latter.
In the first quarter of 2008, US citizens' overall worth fell by .7 trillion because of house price falls and 1.1 million homes in America are in foreclosure (repossession). Repossessions have risen steadily over the last six quarters.
As in the UK, any would-be home buyers are also finding mortgages hard to access. Others have moved into rental accommodation to stave off foreclosure or to sit out house price falls.
As a result, the US rental market is the strongest is has ever been, with rents rising rapidly - hitting the dispossessed home-owners all over again.
The average predicted increase in rental rates for 2008 across the whole market according to the National Association of Realtors is at least 5.3%.
House prices in the US have slumped 22.8% in the last three months alone, with no sign that the worst is yet over.
The statistic is interesting: in the early 90s. UK house prices slumped year-on-year by around 30%, so a fall of nearly 23% in just three months is scary.
Could it happen here?
Atishoo! Atishoo! We all fall down.
However, the symptoms of course, be neither a cold nor pneumonia, just hay fever.
A lot depends on the incubation period: my guess is that this IS a housing crash already, but one that is still more about transactions than prices. I also think there is worse to come (and that's after talking to a Manchester agent who told me that the media were underplaying the situation, which makes a change from being blamed for it). Most of all, I also think that a certain breed of agents will either stick this one out or start up bold and exciting new businesses.
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