naked capitalism

The UK housing market (and indeed the UK economy) seem to be proceeding on the sorry path that we are on. However, forecasts are far from dire, pointing to a softening rather than a sharp fall. But gee, didn’t we see that movie here?

Update: Reader vlade chided me for perhaps creating the impression that the UK was a direct parallel to the US, when the UK has had very little subprime. However, its basic lending practices are more aggressive than those in the US, and the same bubble frenzy mentality appears to have been operative. So while the general trajectory may be the same, the downslope may not be as steep.

From Bloomberg, “U.K. Housing Market Was Worst Since 1992 in December, RICS Says“:

U.K. real-estate professionals said December was the worst month for the housing market since the aftermath of Britain’s last recession in 1992.

The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 49.1 percentage points, the Royal Institution of Chartered Surveyors said today in London. That compares with 40.6 points the previous month. In the capital, confidence in prices fell to the lowest since 2003.

An end to the U.K.’s decade-long housing boom may threaten economic growth as falling home values discourage consumers from spending. Economists forecast the Bank of England will cut the benchmark interest rate for a second time next month after a reduction in December to guard against fallout from the collapse of the U.S. subprime mortgage market.

“The housing market is clearly feeling the pinch from the credit crunch and the round of interest rate hikes in 2007,” Ian Perry, a spokesman for RICS, said in a statement. “The Bank of England may have to cut rates further if the market is to remain in a stable condition.”

A measure of expected prices slid to minus 62 from minus 47 in November, both the lowest since RICS started collecting data on the outlook in Oct. 1998, the report showed….

Other reports have also shown a weaker property market. HBOS Plc, the country’s biggest mortgage lender, said Jan. 8 house prices fell 0.8 percent in the three months through December, the first quarterly drop since 2000. Nationwide Building Society said that values fell 0.5 percent in December….

“The housing market is in the throes of a significant correction,” said Richard McGuire, an economist at Royal Bank of Canada in London. “We don’t see a collapse, but there will be a pronounced downturn that will weigh on consumption.”…

First-time buyers had been shut out of the market as prices tripled in a decade and supply dwindled. Construction of new homes in Britain stagnated at 148,000 units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968.

“Supply would have to loosen considerably before prices experience a significant dip,” Perry said. Today’s report shows stocks on the books of real estate agents rose to an average 76.9 from 71.8 the previous month.

Still, homebuyers may be further discouraged from browsing property as U.K. banks plan to make fewer loans to consumers and companies in the first quarter, according to the Bank of England’s quarterly survey on credit conditions, published this month.