Although the housing contraction started later in England than in the US, the credit and real economy contraction has progressed at a quicker clip. The latest sightings are not pretty.
The Independent reports that new home construction has plummeted to a 50 year low:
New private house-building is at a 50-year low, according to an analysis of the latest official data by The Independent, adding to the evidence that the UK is in recession. Although construction only accounts for 6 per cent of GDP, the weakness in the rest of the economy means the building industry’s state is almost sufficient to push the UK into a slump. It also jeopardises the Government’s targets for new housing.
The downturn is being fuelled by the credit crisis, which has seen mortgage products disappear rapidly. The decline in the supply of new mortgages again helped pushed the Nationwide house price index down. It fell by a further 1.7 per cent last month, leaving average UK property prices down 12.7 per cent on this time last year, their 11th successive monthly fall and the sharpest decline in the history of the Nationwide’s survey. Prices are slipping more quickly now than in the last housing recession in the early 1990s.
Note that in the early 1990s, the peak to trough fall in housing prices was over 25%.
The Bank of England’s newly released Credit Conditions survey (published quarterly) also paints a grim picture, with rising defaults and tighter credit across the board. The Independent provided comments in a separate story:
However, economists believe a further deterioration of corporate credit is now inevitable. “It’s only going to get worse from here,” said Paul Dales of Capital Economics…. Even if the problems in the financial markets were miraculously solved overnight, which is unlikely, the impact of the credit crisis on the real economy will be with us for some time.”
Analysts are concerned that British companies could soon find the supply of credit as restricted as it has become in the US, where even blue-chip multi-national corporations are being forced to pay much more for borrowing than in the past.
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If any major central bank will require complete recapitalization within the next two years (excluding Iceland and the Baltics) the most likely candidate to this writer would be the central bank of Great Britain.
This is still quite unlikely, but we are beginning to enter periods of, to use Fisher from the Dallas Fed’s maritime descriptive framework, Beaufort 11 conditions.
Matt Dubuque
mdubuque@yahoo.com
UK has more debt per capita than US
UK banks run with much higher gearing
I believe UK house prices are higher than the US but less out of line with rents. So the comparative magnitude is unclear. A rapid drop is a good thing; once prices reach a reasonable level the market can then start the appropriate responses, whatever they are.
I just don’t care anymore about any of this, including blogs! Back to painting for me…
Fortis rescue came too late
The Dutch government’s intervention in the troubled insurance company was inevitable and should have come much earlier
http://www.guardian.co.uk/commentisfree/2008/oct/03/netherlands.creditcrunch
Any comparison of UK homebuilding rates of 50 years ago should take into account the fact that there was a heavy local government building program from the end of WW2 until at least the early 1960’s. That is not the case today.
So to say that private building rates are the lowest for 50 years probably means the overall building rates are the lowest since the Great Depression.