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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Sat May 05, 2007 1:44 am Post subject: UK Housing Market Heading for a Property Crash |
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The next rise in UK interest rates to 5.50% is anticipated in a little over a weeks time. This is expected to further impact on a slowing housing market in the UK. Statistics from the British Bankers Association showed a drop in the rate of mortgage approvals by 8% despite the market entering the traditionally strong summer period. UK interest rates are on target to hit The Market Oracle forecasts (as of August 2006, expanded upon in Nov 06), of 5.75% by September 2007. With the risks of even further rises thereafter should inflation continue to stay above CPI 3%
Spain's Housing market suffered a shock this past week, as the housing construction sector took a sharp plunge on the stock market. Spain's housing boom surpasses the UK's in length and magnitude and with over 500,000 UK citizens having participated in it through second and retirement homes. The effects of the Spanish housing bubble bursting will effect the UK second only to Spanish property investors.
The US housing market continues to tumble, with many UK companies participating either directly or indirectly in the US housing boom, these will start to feel the pinch in lack of revenues, especially in the construction sector and impact on the UK economy. Expectations are growing of the US housing slump pushing the US economy into recession during 2008, which will undoubtedly hit many more UK companies. The falling US house prices coupled with the falling dollar contribute further to the relative expensive pricing of the UK housing market in comparison.
The crunch point for UK housing market will come following the summer strength, when affordability concerns not only due to 5.50% interest rates, but also prospects of further rises to come later in the year are likely to trigger the unraveling of UK's housing market boom. Especially as many of the low initial interest rate fixed deals that house buyers have enjoyed during the boom have now been removed in light of rising interest rates and tightening world wide credit markets.
The UK property prices are at extremely high multiples of average earnings, ranging from X5 earnings to X13. The impact of rising interest rates, household bills such as energy and council tax, and the weakening overseas markets means that the crunch time has now finally come for the UK housing market.
UK property owners thinking of selling should perhaps do so sooner rather than later, as the picture during the second half of 2007 will increasingly start to look grim for property investors, as the substantial buy to let speculative brigade will lead the charge for the exit, thus further exacerbating the slump in house prices. For those that say its not going to happen, well that's what many property buyers across the atlantic were also saying not so long ago! As with all market peaks, there could be anecdotal triggers which are usually brought forward in hind site to mark milestones at market junctures, perhaps this time with the UK it could be the introduction of compulsory the Home Information Packs (Hips) on 1st of June, which could have the effect of slowing the market due to an anticipated increased probability of failure of transactions.
By Nadeem Walayat
Copyright © 2007 MarketOracle.co.uk- All Rights Reserved.
The MarketOracle.co.uk is a FREE Daily Financial Markets Forecasting & Analysis online publication. We present in-depth analysis from a range of experienced market analysts on their views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on probable market direction.http://www.marketoracle.co.uk
Attention editors and publishers ! This article can be republished. Republished articles MUST include attribution the author and the above short paragraph including links to MarketOracle.co.uk |
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