Stuck on the wrong side of the Atlantic waiting for a flight home, I’m just waiting for a Daily Mail headline ‘Volcano to lead to House Price Crash’
Volcanoes aside, the remarkable feature of 2010 is the resilience of house prices in the UK, even though they are still relatively overvalued on many criteria. House prices are now around 9% higher than last year
According to the Economist survey April 15th, house prices in the UK are still 31% overvalued. In Britain the house price-to-rent ratio still outstrips its long-term average by nearly a third. Economist survey of overvalued houses
This contrasts with the US, where house prices are now 2% below their ‘fair value’. This reflects a long period of house price falls.
A simple explanation is the surplus of housing stock in the US compared to the UK, where there was never a boom in house builds.
It is not the only factor, in the UK home repossessions have been less severe than expected. Undoubtedly helped by low interest rates, and banks reluctant to enforce repossession, many have been able to keep their houses when it could easily have been repossessed.
However, with inflation creeping above the governments target (CPI inflation now 3.4%), the prospect of low interest rates will not remain.
However, it could be worse, according to the Economist house prices in Spain are 50% overvalued, and they have a huge surplus of housing stock. Spain also faces prospect of deflation or very low inflation because it is in EURO and cannot maintain independent monetary policy. They could face a long period of falling house prices which will only worsen their economic situation.
4 comments ↓
The housing market in South Africa has not been so badly affected. The growth is not there, so the buying today and selling for a significant profit tomorrow type of profiteering has disappeared, but there is positive growth in the local market, especially in the lower end of the market.
[...] House prices are rising from an unsustainable level. According to an Economist survey of global house prices, UK house prices are still 31% overvalued. The house price-to-rent ratio still outstrips its long-term average by nearly a third. (link) [...]
The British people have long had a strange notion of trying to make their home have as higher value as possible only to erode their capital by running up as much debt as possible against the equity causing untold misery when the bubble bursts as it has now
[...] It’s a bizarre situation when in the aftermath of a prolonged recession, UK house prices manage to increase 10%, despite being fundamentally overvalued. [...]
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