Filed under: International markets, Forecasts, Bad news, Economic data, Housing, Recession
The protracted housing slump that has devastated U.S. home prices now appears to have fully-enveloped the United Kingdom. Home prices in the United Kingdom in August fell at their fastest pace in two decades (pdf), U.K.-based mortgage lender Nationwide Building Society announced Thursday.
On a year-over-year basis, the average price of a U.K. home plummeted 10.5% to $301,500 or 164,654 British pounds in August, NBS said. Further, it was the first year-over-year double-digit decline in the U.K. since 1990.
London-based economist Mark Chandler told BloggingStocks Thursday the August U.K. housing data, “is just dreadful.”
“Housing in the U.K. is becoming a bit of a ‘magical mystery tour,’ to borrow a phrase from The Beatles. For a month or so, we thought the declines in home prices had moderated. Apparently not,” Chandler said. “Tighter lending requirements and real concern about the economy have sapped sales and it’s really showing up in the price data.”
U.S., U.K.: Similar housing dynamics
Further, Chandler said the United Says and the United Kingdom are suffering similar housing sector dynamics. “The U.K. did not experience as big a refinancing boom as America did, but in nearly each other metric the boom was the same. We’d a classic overbuild of homes, a belief that double-digit price gains could not end, and of course, reckless lending,” Chandler stated. “Now, our inventories are swelling just like in America and prices are plunging.”
Chandler said the above data “should push the Bank of England in the direction of one, perhaps two quarter-point interest rate cuts this fall.” U.K. GDP was flat in Q2, and Chandler now expects the U.K. to record negative GDP of -0.2-0.5% in Q3.
“I’m confident this data will keep the Bank of England on the same page with the U.S. Federal Reserve. The housing data over the past year confirms a regional housing recession that’s cut GDP on both sides of the Atlantic. The housing sector has the potential to drive both economies into a recession,” Chandler said. “The task now is to get the European Central Bank on board with an accommodative interest policy to stimulate growth on the [European] continent.”
Economic Analysis: More bad news from the United Kingdom. Originally thought to be less vulnerable to the housing sector’s downtown than the U.S., the U.K. now appears to be just susceptible as the U.S., even though Britain’s foreclosure rate may be lower. Echoing economist Chandler, all three major central banks — Fed, BOE, ECB — should commit to an interest rate easing policy to promote a regional economic recovery. Let’s hope the ECB is paying attention.
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