Do not Blame Credit Crunch For House Price Falls

  • 17 years ago
  • Uncategorized
UK house price indicators show reductions in house prices with figures from Nationwide, Halifax, Hometrack, and Rightmove are showing falling prices. A common misconception is that the sub prime market and credit crunch is to blame for this downturn. A look under the surface will reveal that there is not one source to blame. One economics expert spreads new light on the plight of the UK housing market.
An article published in The Telegraph written by Roger Bootle managing director of Capital Economics and economic adviser to Deloitte shows a different picture to why house prices in the UK are falling.
Roger Bootle’ The credit crunch is not the root cause of what is going wrong in the housing market. The decline in new buyer inquiries began at least six months before the onset of the problems in wholesale markets – as did the downward move in completed sales. There are two fundamental causes of the housing market slump, one proximate and the other underlying. The proximate cause is interest rates. Official interest rates began to rise last August and they are up in total by 125 basis points. The second, fundamental reason is that property has become too expensive. What goes up too far must come down – and often too far as well. There are several indicators of housing market excess. My own favourite is the house price to earnings ratio, which currently stands in unheard-of territory at over six’
Further evidence of a housing slump is seen by results at recent auctions in the UK. Auctions are normally associated with sellers who are very keen top sell and price their properties accordingly.
“The auction results that we have been tracking suggest that a substantial gap has opened up between the price that buyers are willing to pay and that which sellers are expecting to achieve,” said Alan Castle, economist at Lehmans.
“Moreover, the data we have collected on asking price reductions suggest that the auction results may be flagging a broader trend towards lower house prices in some areas,” he added.
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