cardboardbox?Youwerelucky
|
Financial CommentHouse price crash to end quicker than thought, thanks to recession
October 24, 2008 | posted by Michael Baxter in House prices |
| Quote: | The recession is going to be deeper and more serious than was originally expected – well, we all know that now. Yet, bizarrely, that could be good news for the housing market recovery.
Capital Economics has revised its projections for the house price crash. It still reckons prices will fall 35 per cent from peak to trough, which means there’s still around 25 per cent worth of fall to come, but it now thinks this will all happen a whole lot quicker.
“Government bailouts of the ailing banking sector, both here and abroad, have hopefully averted full scale meltdown of the UK and global banking systems. But they will not prevent a major fall in bank lending to households and companies. We now think that the UK economy will contract by 1 per cent in 2009 and by 0.5% per cent in 2010. We also expect unemployment to rise by almost 1.5 million,” said one of its economists, cheerfully.
“However,” went the latest forecast from the economics consultancy, “the deeper recession does not mean we are necessarily facing a deeper housing market correction. After all, our previous forecast already factored in a significant rise in unemployment and some falls in GDP. It also allowed for house prices to overshoot our estimate of fair value a little. What’s more, we expect inflation to drop rapidly, allowing interest rates to fall to 2.5% next year, if not lower. At the margins, lower interest rates will help to prevent a larger fall in house prices. But, the deeper recession is likely to mean that the pace of house price falls will intensify.
“Given time, the Government’s bank rescue package might help to ease the mortgage credit squeeze. However, with expectations of further house price falls widespread and with unemployment rising, a lack of mortgage demand, not supply, may be the bigger problem next year. We expect transactions to fall to around 650,000 this year – half their 2007 level, with only a modest pick-up in 2009.
“Our analysis suggests that regional house price falls will be more evenly distributed across the country than they were in the early 1990s slump. However, valuations look most stretched in the South West, Wales, Northern England and Northern Ireland, and these regions will see the largest drops.
“Although tenant demand is likely to remain healthy, the rise in supply of rented accommodation and the larger increase in unemployment that we expect will bear down on rental growth and our forecasts have been reduced. At best, rents will match average earnings growth but not exceed it.”
So why is all that good news? Well, the big problem with Japan 20 years or so ago, was the terribly slow pace with which it all imploded. By getting the housing crash out the way as quickly as possible, we can then return to conditions of normality.
Mind you, our definition of normality might change. It used to be considered both normal and good to see house inflation in double digits each year. If we see a repeat of that, then it will mean we have learnt absolutely nothing from this saga. |
|
halfaperson
|
| Quote: | | By getting the housing crash out the way as quickly as possible, we can then return to conditions of normality. |
By that I suppose he means lending tramps with just a Lidle bag of thunderbird as collateral 350,000 pounds to buy a terrace house so that prices go up so much it takes an average working man four lifetimes to pay for the thing. That way banks, goverments, estate agents can all get rich untill the next crash when the whole recession starts again and the goverment (we) bail them out again.
|
|
|
|