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UK housing market falls in Dec

Worst performance since aftermath of 1992 recession

(LONDON) UK real estate professionals said that December was the worst month for the housing market since the aftermath of Britain’s last recession in 1992.

The number of real estate agents and surveyors saying that prices fell exceeded those reporting gains by 49.1 percentage points, the Royal Institution of Chartered Surveyors (RICS) said yesterday. That compares with 40.6 points the previous month. In the capital, confidence in prices fell to the lowest since 2003.

An end to the UK’s decade-long housing boom may threaten economic growth as falling home values discourage consumers from spending. Economists forecast that the Bank of England will cut the benchmark interest rate for a second time next month after a reduction in December to guard against fallout from the collapse of the US subprime mortgage market.

‘The housing market is clearly feeling the pinch from the credit crunch and the round of interest rate hikes in 2007,’ Ian Perry, a spokesman for RICS, said in a statement. ‘The Bank of England may have to cut rates further if the market is to remain in a stable condition.’

A measure of expected prices slid to minus 62 from minus 47 in November, both the lowest since RICS started collecting data on the outlook in October 1998, the report showed.

All 12 regions represented in the survey showed price declines. Northern Ireland and East Anglia posted the worst results, with balances of minus 82 and minus 81, respectively. London’s reading fell to minus 54 from minus 27 in November.

‘Very quiet in December, with little to give the market confidence, unless we see another drop in interest rates,’ Christopher Philpot, real estate agent at Lacy Scott & Knight in East Anglia, said in the statement.

Other reports have also shown a weaker property market. HBOS plc, the country’s biggest mortgage lender, said on Jan 8 that house prices fell 0.8 per cent in the three months through December, the first quarterly drop since 2000.

Nationwide Building Society said that values fell 0.5 per cent in December.

‘The case for a rate cut is clearly pretty strong for February,’ said Simon Rubinsohn, chief economist at RICS, in a Bloomberg television interview yesterday.

The Bank of England last month reduced its benchmark to 5.5 per cent as consumer spending showed signs of weakening, and a Bloomberg News survey on Jan 4 showed that most economists forecast the rate to fall to 4.75 per cent by the end of 2008. Tesco plc and Marks & Spencer Group plc reported a slump in retail sales over the

Christmas holidays as shoppers reined in spending, prompting both to call on the central bank for more rate cuts.

Chancellor of the Exchequer Alistair Darling, concerned that economic growth is beginning to slow, has urged financial institutions to pass on lower interest rates from the central bank to customers. Banks raised rates on mortgages fixed for two years last month even as the central bank lowered borrowing costs, the Bank of England reported on Jan 10.

‘The housing market is in the throes of a significant correction,’ said Richard McGuire, an economist at Royal Bank of Canada in London. ‘We don’t see a collapse, but there will be a pronounced downturn that will weigh on consumption.’

The central bank forecast in November that UK growth would slow this year to about 2 per cent from about 3 per cent in 2007. The bank will publish new growth and inflation forecasts on Feb 13.

RICS, which lobbies for about 150,000 property surveyors, said in a Dec 20 statement that pent-up demand and interest rate cuts will prevent a slump in the UK property market this year.

First-time buyers had been shut out of the market as prices tripled in a decade and supply dwindled. Construction of new homes in Britain stagnated at 148,000 units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968.

‘Supply would have to loosen considerably before prices experience a significant dip,’ Mr Perry said. Yesterday’s report shows that stocks on the books of real estate agents rose to an average 76.9 from 71.8 the previous month.

 

Source: Bloomberg (Business Times 17 Jan 08)

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