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UK has already hit ‘stage three’ of a property downturn

·2-min read
Ryan Gosling as Jared Vennett in ‘The Big Short’ demonstrates how quickly a housing market can fall   (Paramount Pictures )
Ryan Gosling as Jared Vennett in ‘The Big Short’ demonstrates how quickly a housing market can fall (Paramount Pictures )

Interesting musings reached my screen this morning from Neil Shearing, chief scribe at Capital Economics. He has written an intriguing analysis of the state of things in the housing markets of a selection of countries including the UK.

He describes how a property downturn progresses through four stages: first a downturn in housing market sentiment; second a slump in measures of buyer traffic such as estate agent enquiries, in the third stage, measures of housing market activity, such as mortgage approvals start to drop, and finally, prices fall.

Shearing argues that the UK - among several other developed western nations - has galloped to the third stage in record time with the fourth phase inevitably set to follow. He predicts that market falls will be smaller  than in countries such as Canada, Sweden and New Zealand, but will nevertheless be in the five to ten per cent range.

That does not sound disastrous compared with some other downturns in my lifetime but when inflation is running at 10%, as it will by the Autumn, that is a chunky and painful hit to real values.

Perhaps not the best time then for the Prime Minister to be extolling the benefits of 95% mortgages to “turn generation rent into generation buy” as he has done consistently over recent years.

In London as in the rest of the country prices are still rising if the latest surveys are to be believed. Shearing argues that the coming downturn will not be as severe as the slump that followed the global financial crisis.

But then rates were falling like a stone now they are on a rapid upward path.

Emergency action from the then Bank Governor Mark Carney meant that they bounced off the bottom and recovered remarkably quickly. This time the nominal fall might be smaller but it is likely to be a slower burn recovery as interest rates stay high.

In that respect the housing slump - if it comes - may more closely resemble that which scarred the home owning dreams of the negative equity generation in the early Nineties.


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