Property - then and now
Conditions in the UK housing market seem to get tougher by the day. The latest data on home repossessions is pretty dire - the Times reports that “Home repossession orders are nearing the level last seen in the recession of the early 1990s after rising by 16 per cent in the first quarter of this year.” and a fresh cluster of announcements about higher mortgage costs and tightening lending criteria have come from various mortgage lenders. In the short run there is really not much that the government can do to prevent even higher levels of property repossessions (or foreclosures), one danger is that fire-sales of repossessed properties will increase the supply-demand balance and drive prices down even quicker that forecast.
I liked this piece from the Money Central section of the Times website which cast a glance back to the last time that the UK property sector was in deep doo daa - how different are the market conditions in 2008 compared to the early 1990s? A good read for students wanting some historical perspective to build into their exam answers.
Sub prime risks for the UK
We tend to think of the sub-prime mortgage crisis as being largely concentrated in the United States. But there is a growing body of evidence that some parts of the UK are also heavily exposed to the risks of a sub-prime crisis. The Financial Times today carries an interactive map which highlights those towns and cities thought to be most at threat from a rise in housing repossessions. According to research from FitchRatings, mortgages made to subprime borrowers – home owners with a shaky credit history – account for 10 to 11 per cent of all private homes in six UK towns - namely Newport, Wales; Cleveland, Teesside; Wolverhampton; Cardiff; Manchester; and Galashiels, Scotland.
Chart of the Day: Falling UK House Prices
No surprises for our choice of chart of the day!
House prices have seen their biggest monthly drop since the 1990s recession, according to Halifax Bank of Scotland - the UK’s biggest mortgage lender. Let us include the usual caveat that you should never read too much into one month of data - but it seems to me that virtually of the housing market indicators including many of the forward-looking confidence surveys from households, estate agents and construction companies are pointing to a hefty downturn in house prices and activity in the market over the coming months whatever the soothing comments of the housing market economists from the leading banks and mortgage lenders. From a personal perspective, I am happy for property prices to decline for a couple of years having been out of the market for some little while. It probably won’t be a rout whatever the Daily Mail and Daily Express might suggest on their front pages. But the property boom is most definitely over for now and a dampening of the ardor for bricks and mortar as almost the sole route to greater wealth is, in my opinion, no bad thing at all.
PowerPoint Charts
House_Price_Inflation.ppt
A bubble waiting to be pricked
Roger Bootle has been a long standing critic of rampant asset price inflation. In the Business Telegraph he provides a caustic and hard-nosed look at the housing market recession.
“There are two major causative factors at work. First, houses have become extraordinarily expensive, to the point where ordinary people can barely afford a shoe box. And second, the ample supply of credit which allowed this to happen is now tightening. The second may be the proximate cause of the coming fall in prices. But don’t let anyone fool you into believing that it is the fundamental cause. That prize goes to the ludicrous over-inflation of prices. In order to get on the “ladder” you have either to own property already or mortgage yourself up to the eyeballs. This has been a bubble waiting to be pricked.”
The rest of his article which is excellent for students preparing for the housing market paper (AQA unit 3) this summer can be found here
Over at the Independent, the superb Stephen King looks at the credi crunch and market failure
From Pope Pius VII to the credit crunch, market failure lives on
Chart of the Day: Construction Sector Confidence
Last week we had lots of coverage and comment on the retreat from mortgage lending by many of the UK’s biggest home finance providers. The essence of the problem is that the lenders are just not as willing to offer loans to people as they were. Profit margins have been squeezed as the wholesale cost of money has risen, and some mortgage providers have effectively left the market for the time being. This is making life very difficult for people needing to get a first-time loan or looking to renew their mortgage deals when fixed rate agreements reach an end.
The result is a sharp fall in the number of property transactions that are falling through because of problems in finding the required level of funding.
read more...»Exiting Mortgages - Subnormal Profits
What is happening in the UK mortgage market? Rarely a day goes by without news of another mortgage lender reassessing the risk of their housing loans and deciding to pull the plug on some of their mortgage products. Following on from the Northern Rock which has virtually stopped lending at all and wants to shift a sizeable portion of its mortgage book onto others. The Co-operative Bank, Lehman Brothers and First Direct have all announced that they are withdrawing two-year fixed rate mortgage products for the time being ans there are rumours that Halifax Bank of Scotland, the UK’s biggest mortgage lender is poised to do likewise.
All of this is one of the direct results of the credit crunch. The lenders are spinning this as a way of providing better service-levels to their existing customers but the reality is that the supply of finance in the wholesale money markets has been badly squeezed and this is now feeding through to the retail market for housing loans. It is costing the mortgage lenders more to borrow funds and their profit margins have been squeezed to a level where sub-normal profits are being made. Little wonder that some of the major players are effectively exiting the market by withdrawing some mortgage products from sale.
Getting real…?
Despite continuing problems in the financial sector, UK consumers are defying the odds and doing what they know best - shopping.
read more...»UK Housing Market Update (March 2008)
Data for March 2008 shows a further deceleration in the pace of house price inflation and a sharp drop in the volume of completed property transactions. There are signs of a tightening of mortgage lending with some smaller building societies restricting the number of mortgages they are prepared to lend out. The value of new home loans is certainly falling and the share of fixed rate mortgages in the property market is sliding. I have attached a six chart summary of developments in the housing market used in discussion with my AS Economics students.
