July 2nd, 2008 — Uncategorized
US House prices have slumped on the back of more problems in the credit markets.
The drop in house prices is not the biggest fall since the Great Depression, and in some cities it is even worse.
Despite interest rates of 2%, the demand for houses has dried up due to:
July 2nd, 2008 — house prices
UK House Prices Between 1975 and 2007 Q4:
Note there is a much bigger change in nominal prices than real prices. It also means that with house prices falling now, the real effect is even greater. If house prices drop by 10% in nominal terms, it means in real terms for drop is closer to 13%.
The data is collected by the Nationwide one of the UK’s largest mortgage lenders. Nationwide
May 15th, 2008 — house prices
There are concerns that the UK could enter into recession. If this is the case, it would further weaken the UK economy. A recession would lead to higher unemployment and lower consumer confidence. Both these factors would have a negative impact on the Housing Market. Because housing costs are such a large % of income a fall in income would lead to lower demand and cause a big fall in house prices.
The only benefit of a recession, as far as the UK housing market is concerned, is that it could lead to lower interest rates. IN a recession, inflation usually falls and this means the MPC will be able to cut rates. However, this particular recession may not be straightforward as we currently have a slowdown and higher prices e.g. rising oil and food prices. If a recession is accompanied with a stubborn inflation rates, interest rates may not fall, further reducing the demand for the housing market.
May 15th, 2008 — house prices, housing market
Rising demand for second houses has caused higher prices, especially in local property hotspots such as tourist areas like the Lake District.
This can cause economic problems. In particular, local first time buyers may be forced out of the market. Therefore, they will either have to rent, or they may be encouraged to leave the area. This can cause a shortage of labour and damage local economies e.g. shops can’t get people to work. In addition, it can change the nature of local areas because it is populated by ‘visitors’ as opposed to people who live there throughout the year.
On the other hand, people who buy second homes may bring wealth and spending power into the area. It depends how long they spend in their second house. If it is only 2 or 3 weeks a year then the area will not benefit. If they rent the house cheaply to local people in the intervening years it will be less damaging.
It also depends whether supply can increase to meet the demand for second houses. The problem in the UK is that it is often difficult to build new houses, especially in these tourist areas most affected by people buying second houses.
May 7th, 2008 — house prices
1. There is a shortage of Mortgage Finance.
This is probably the biggest factor at the moment. Since the credit crisis of 2007, when many US subprime mortgages were defaulted on, there has been a shortage of available finance. Because banks lost money lending in America they are reluctant to lend to new homeowners. British Banks are asking for bigger deposits and are charging higher interest rates. Therefore, many people who would like to get a mortgage are unable to find a deal in the current climate. This means many first and second time buyers are having to rent rather than buy. This is causing a big fall in the number of people able to buy.
2. The ratio of house prices to incomes increased to an unaffordable level.
The long term average for house prices to income ratio is about 2.5 - 3. Currently it stands at 5. This means the average worker needs to take out a mortgage upto 6 or 7 times their salary. However, banks will no longer lend this amount of debt. Therefore, many, especially first time buyers simply can’t afford to buy.
May 1st, 2008 — mortgages
The term mortgage implosion refers to the dramatic decline in the number of mortgage approvals in the UK and other countries affected by the housing downturn.
Upto June 2007, the mortgage lending market was very competitive and lenders eager to attract customers through offering non traditional mortgages such as interest only, low deposit mortgages and mortgages with high loan to income ratios.
However, beginning in the US, there have been many problems in the mortgage industry worldwide.
The US mortgage industry made many inappropriate loans to people, especially in the subprime (bad credit sector). In 2003, US interest rates were very low, so these mortgages were temporarily affordable. However, as US interest rates increased to 4.5% many homeowners suddenly found themselves with unaffordable mortgage payments and so they failed to meet their mortgage payments. This led to a rise in foreclosures (mortgage defaults) and many mortgage companies lost their money.
April 23rd, 2008 — house prices, housing market
House prices are determined by a number of different factors. Firstly there are ‘economic fundamentals’ these are factors such as economic growth and the level of average incomes. However, in addition to the basic economic reasons, house prices are often quite volatile because other factors influence the level of house prices. In the UK and US we have seen the importance of speculation and investment in the housing market. This has caused house prices to rise more rapidly than incomes.
Also in recent years, the availability of mortgage finance has played an increasing role in influencing house prices. When mortgage companies are keen to lend a range of unconventional mortgages demand for housing will rise. But, in a credit crunch mortgage products are withdrawn leading to lower demand.
For more detailed analysis see: Factors that determine house prices
April 15th, 2008 — house prices
Recently the drop in UK house prices accelerated. Surveyors reported the most pessimistic conditions since 1978. House prices falling at fastest rate since 1978 (link)
The house price falls are worst in areas such as Northern Ireland, the South West and East Anglia. Areas least affected include London, Yorkshire, and Scotland.
Lower prices are being driven by difficulties in the mortgage lending industry (see: can I still get a mortgage?), which have seen falls in mortgage lending by upto 40%. The difficulties in the mortgage sector have occured because of the shortage of credit in the money markets. Many big financial institutions are experiencing grave difficulties in getting sufficient funding and the crisis may worsen before it gets better.
Will the Bank cut Interest rates?
If the Bank of England cut interest rates, then it may stem the house price falls because it would make the cost of borrowing cheaper. However, the persistence of cost push inflation makes cutting rates more difficult and so homeowners may not find mortgage rates any lower in 2008.
April 3rd, 2008 — house prices
The last few months have increased the likelyhood of falling house prices in the UK.
These factors could contribute to housing price fall
April 3rd, 2008 — housing market
The North of England used to be a good place for first time buyers to get on the property ladder. However, in recent years the price of houses in the north has increased significantly, reducing the gap between north and south. The result is that many areas in the north are becoming as expensive as areas in the South.
However, the price of houses in the north has an increasing variance between different regions. For example within a city like Manchester or Leeds, house prices can vary by upto 80% between different areas of the city. Continue reading →
