The UK real estate market started its decline after the US , and some anticipate the eventual downside could be even worse. Consumer debt to income there is at an even higher level than here, which means plummeting real estate values can lead to cascading debt defaults, potentially to a greater degree than in the US.
The headline of the story is even more alarming than it might seem. England experience a nasty housing recession in the late 1980s through the early 1990s, with prices falling over 25% from peak to trough. The fact that sales are lower than at any point in that downturn is not a good sign.
From the Times:
Home sales fell to their lowest level in 30 years last month as the seizure in the mortgage market continued to drag house prices down.
Estate agents reported that they sold an average of 15 properties in the three months to the end of June, figures from the Royal Institution of Chartered Surveyors (RICS) show. That is nearly 40 per cent lower than the same period last year and the lowest figure recorded since RICS began its series in 1978…
While falling house prices should be encouraging more buyers to the market, the number of new purchasers is being suppressed by a lack of home loans. Jeremy Leaf, of RICS, said: “Transaction levels remain incredibly low with many buyers cut out of the process by tight lending conditions.”….
A balance of 35 per cent of surveyors reported falls rather than rises in buyer inquiries during June in England and Wales, while 14 per cent more surveyors reported falls in Scotland. The outlook for the housing market also remains gloomy, with nearly 70 per cent of surveyors in England and Wales expecting prices to fall….
Global Insight forecasts house prices to fall by 15 per cent in 2008 and 12per cent in 2009, resulting in a 26 per cent drop in house prices since their peak in August last year. Capital Economics forecast a 35 per cent drop in house prices in the next three years.