England’s Housing Slump Echoes U.S. Fallout
- Apr 08, 2008
The American Revolution may have split the U.S. and Britain, but when it comes to housing, both countries are looking lately like they’re joined at the hip.
The U.K. housing market of recent years in many ways echoed the U.S. market: Prices skyrocketed, purchases increased, the economy benefited.
And then, the U.S. subprime collapse began. Sales plummeted, prices fell–and talk of a recession started.
One of the few housing strongholds: New York City, our metropolitan hub, whose market actually increased. And what a market that is: According to the Forbes list of the biggest home sales of the year, the top five in 2007 were in New York City.
The U.K.’s housing market rise and fall–although lagging months behind the U.S. decline–has been very similar.
- After months of big increases, in January, the Royal Institute of Chartered Surveyors
(RICS) said that British property prices were declining at their fastest rate since the
- Even the typically strong London market–the country’s biggest urban area–took a hit, starting in December.
Because the Bank of England closely watches RICS data and considers it a sign of future home prices, the news was met with concern. But it wasn’t the last rough housing news for the U.K.
As home prices dipped, the credit crunch rolled its way across the globe–and the U.K. began to experience some of the same problems as the U.S.:
- Soon the subprime market was in doubt: More
than half of the foreclosure orders in the U.K. involve subprime borrower-owned homes, a BBC News report said in mid-February.
- And now, British banks are tightening up lending–and requiring borrowers to put some money down. Today, Reuters reports that another British Bank–Abbey–said it will stop giving out 100 percent mortgages this week. Abbey’s competitors already have stopped issuing full-finance mortgages.
That’s a move U.S. banks have largely already made; more changes may be on the way, depending on how the presidential election goes. If Republican nominee John McCain wins, lending may get even stricter, given that he suggested in late March that lenders not only do away with no down payment programs, but also set a minimum downpayment amount for mortgage loans.
So is the housing slump over yet for either country? Probably not.
Some have said that U.S. prices will still fall further. The National Association of Realtors’ data released today–showing sluggish future home sale activity–indicate that could be the case.
It seems home prices in the U.K. have a bit to drop as well.Even though the U.K.’s biggest lender, HBOS, said today
that the average home cost in Britain dropped 2.5 percent from
February, home prices in the U.K. have still risen 171 percent in the
past decade, Bloomberg said.
But will the U.K. housing situation play out exactly as the U.S. one has? That remains to be seen. One thing is certain: We’ll be watching to see if it does …