Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US and UK Housing Bear Market Trends

Housing-Market / UK Housing May 26, 2008 - 08:53 PM GMT

By: Nadeem_Walayat

Housing-Market Best Financial Markets Analysis ArticleThe housing bear markets continue to bite into economic activity as the US heads for recession this year and the UK during 2009. The US is still showing no signs of a housing bottom having fallen by 3.1% in the first quarter of 2008 according to government statistics, and foreclosures rising to a all time high as borrowers walk away from homes sinking into negative equity. The UK housing bear market has now entered its 9th month following the peak of August 2007, having gone negative on a year on year basis for April 08 data, which was one of the primary reasons for the meltdown in the UK Labour parties vote in the recent string of May elections.


US housing market bottom pickers seem to be ignoring the fundamentals -

  • Of the large over hang of supply on the market of more than 4.5 million homes that will persist for many years.
  • That the US economy is only now going into a recession that despite the Feds efforts will extend well into 2009 resulting in job losses and more foreclosures.
  • The credit crisis has not hit bottom, risk averse lenders are either unable to or unwilling to lend to prospective borrowers under most circumstances.
  • That inflation is eroding the consumers ability to service mortgages and those that face negative equity are increasingly walking away from their mortgage obligations.

The US Housing market turned lower in late 2006, the down trend to date is accelerating as the number of unsold properties passes the 4 million mark creating a large over hang of supply. There is no technical or fundamental sign of an imminent bottom. US house prices could easily fall another 15% and then be subjected to many years of consolidation before prices can start to rise higher again. This despite the clear inflationary strategy of devaluing the US dollar as evident by the currency adjusted gap developing between US and UK house prices (green line). The US housing market is clearly in the grips of a vicious cycle of house price falls, leading to more foreclosures leading to further house prices falls. The impact of each turn of the cycle is an greater credit squeeze as leveraged banks losses and risks escalate.

The UK housing market peaked in August 2007 and to date is declining at an annualised rate of 7.5%, which is inline with the two year forecast for a 15% price drop from August 2007 to August 2009. Whilst there are many fundamental reasons for why the UK house prices have been more supported than the US i.e. limited new builds and recent influx of immigration from eastern europe. However the degree to which the UK housing bubble has been inflated gives ample scope for a serious price correction that would extend to a period well beyond the initial 2 year house price forecast period, especially if the recent immigrants flow outward during a UK recession and therefore contributing towards a glut of empty rental properties amongst the sizeable speculative buy to let sector.

Not only have UK house prices risen by 170% since January 1999, against US house prices that currently stand at up 111%. But the currency adjusted increase is 225%, where much of this increase has taken place during the past 2 years. The UK housing market seems destined to give up all of the gains made during 2006 and 2007 and therefore targeting a nominal price decline of at least 19%. Declines beyond these are dependant upon inflation and currency trends which could see a real terms inflation adjusted decline of more than 33% over a 3 year time frame (from August 07).

With US house prices expected to decline by a further 15% this would still make UK house prices more expensive in comparison and therefore could be followed by a severe currency adjustment which implies a sharp drop in the pound against the dollar. Already the British Pound has closely tracked the dollar's decline lower since the summer of 2007, having fallen by 17% against the Euro.

Another major negative for the UK housing market is the impact of the ongoing depression in the financial sector as it comprises a much larger segment of the UK economy than for the US. The UK financial sector helped lift average house prices in London to over £320,000 ($640,000) way beyond average London salary of £42,000 ($86,000), this implies a greater than average fall for London and is backed up by recent statistics which extrapolate towards an annualised fall in house prices of 12%.

Home owners looking forward to further interest rate cuts will be disappointed as both central banks have signaled a halt to rate cuts. The US has called a halt after deep cuts from 5.25% to 2% against the UK which has cut rates from 5.75% to just 5%. The halt in rate cuts is as a consequence of the surge in inflation that is expected to exceed upper boundaries in the coming months.

As the US market is discovering, government attempts to inflate their way out of a nominal house price falls will not work during a time of an emerging markets demand led secular commodities bull market, throw in the consequences of peak oil and you have all of the hall marks of nominal housing market price falls despite rising inflation, as consumers have even less cash available after paying for the rising costs of necessities then to service increasingly expensive mortgages that have reset to higher interest rates by banks with decimated balance sheets as a consequence of the ongoing credit contraction. Thus an economic environment of building stagflation with deflationary forces equals a cycle of continuing house price falls triggering even further deflationary credit contraction amongst risk averse lenders.

Therefore those looking for an early bottom to the US and especially the UK housing bear markets may be greatly disappointed.

More analysis on the US and UK housing markets in this weeks free newsletter.

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in