The weakening UK housing market was revealed to be in even worse shape than feared. Prices fell 0.9% in June on top of a record 2.5% fall in May. That puts the British market down a mere 6.3% year to year, which sounds tame compared to the US, until you factor in that UK consumers are the most highly levered in the world. That has the potential to produce rapid changes in behavior.
Indeed, what is most striking about this update from the Times is the talk from analysts that the worst is yet to come. From the Times:
The pace of price falls almost doubled in the second quarter, with average home values dropping by 3.7 per cent between April and June, compared with a 2 per cent fall in the previous three months, based on Nationwide’s figures.
Alan Clarke, of BNP Paribas, said: “There is virtually no light at the end of the tunnel for the housing market. Plenty more downside is likely.”
Howard Archer, of Global Insight agreed. He said: “This is hardly the most reassuring of news, and does little to dilute concerns that we are headed for a sharp correction in house prices.”
Economists have scrambled to forecast an even more severe correction in house prices than previously expected after dire figures from the Bank of England this week showed that the number of new home loans agreed plunged to record lows in May.
Prices are under severe pressures as the scarcity and increased cost of mortgages combines with expectations of future price falls to leave ever fewer properties changing hands.
Some economists expect prices to slump by between 15 and 20 per cent this year, and continue to drop until at least 2010.