By Mike Caggeso
Associate Editor
The U.K. housing market is slowing, and housing prices could actually decline next year, according to analyst forecasts and the latest batch of government economic reports.
United Kingdom housing prices actually rose 0.3%, a slowdown from the 0.5% advance in August and the scorching 2% leap in July. Also, the annual rate of house-price inflation slowed to a 10.8%, down from 11.3% in August and 12.3% in July, according to the Department of Communities and Local Government (DCLG). The average house in the United Kingdom is priced at about $454,000 (220,111 British Pounds Sterling).
News on housing prices yesterday (Monday) followed a Friday memo from Citigroup Inc., (C), which said that home prices may fall as a result of higher interest rates, property overvaluation and record debt levels pushing potential homebuyers out of the market, Bloomberg News reported.
"We suspect that the number of buy-to-let home purchases will fall outright in 2008, hence contributing to a sharp drop in overall housing turnover ... there is a sizeable risk that the outturn will be worse," Michael Saunders, Citigroup's chief western European economist, said in an e-mailed note, published by Bloomberg. Saunders also forecasted a price decline of between 1% and 2%.
Also on Friday, a report from Halifax Bank said that housing prices also fell in October. Halifax also said that the annual rate of house inflation continued to drop, down to 8.9% in October, the United Kingdom's Independent reported.
The bank also warned that housing-market activity was declining, with 11% fewer mortgage approvals during this year's third quarter than in the same period last year.
Home Prices Tripled in Past Decade
U.K. house prices have nearly tripled in the past decade, largely due to the recent surge of buy-to-let investors - people who buy properties and then rent them to tenants, Citigroup said. This has disguised the fact that mortgages to first-time homebuyers have dropped 31% in the past five years. Now, with rental yields falling, landlords are sweeping up fewer properties, uncovering another nasty gray area in the U.K. housing market.
Saunders, the Citigroup economist, went as far as predicting the Bank of England will cut its benchmark lending rate by half a percentage point (50 basis points), from 5.75% to 5.25%. Last week, the Bank kept rates in check for the fourth month in a row.
"Given weakness in housing and financial market strains, risks lie on the side of more, rather than less, easing," Saunders said.
And understandably, forecasts for the U.K. economy are just as dreary. Despite a possible rate cut, the British Chambers of Commerce (BCC) forecasted a 1.9% GDP growth in 2008, compared with the 3.1% it predicted for the end of 2007. The BCC's predictions factored in two quarter-point rate cuts by the summer.
More clues of the country's economic health will emerge this week when the Bank of England publishes its quarterly economic report and October's inflation numbers.
News and Related Story Links:
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Bloomberg News:
U.K. Home Prices May Decline in 2008, Citigroup Says
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The Independent:
House prices fell in October, says Halifax
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Price Association:
Slowdown of Economy Predicted