Economists warn of US house price slide

Americans should brace themselves for at least another year of plunging house prices, two leading Wall Street economists said yesterday.

The slump, they argue, is, at best, only halfway through its cycle, with the inventory of unsold homes continuing to rise.

Carl Weinberg, at High Frequency Economics, said yesterday: “We are nowhere near the bottom at all.”

Mr Weinberg identified two factors that could keep property prices falling: first, the rising number of unsold homes; and secondly, the fact that the number of sub-prime mortgages, which will reset at a higher interest rate, will not peak until the end of the year. It is expected that many of those borrowers will not be able to absorb the rise in repayments.

Kevin Logan, senior market economist at Dresdner Kleinwort in New York, said that the American housing slump - the worst for 16 years – is halfway through its cycle, or not even that, and that demand for property would continue to recede.

more ...

------------------------
Check out the rest of this blog here.

Overheating sees house price downturn in Europe

House prices on the overheated fringes of Europe have begun to turn down sharply, replicating the early phase of the sub-prime property slide in the United States.

Housing booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes.

Irish property has fallen for the past four months in a row as higher eurozone interest rates start to bite harder, while the speculative bubble in the Baltic states has burst.

House prices in the greater Riga region of Latvia fell 3.5pc in June, following a 1pc fall in May. Flats in the old city became more expensive than Berlin by early this year in a speculative frenzy, much of it with euro, Swiss franc, and yen mortgages that could prove disastrous if Latvia's currency is suddenly devalued - as may well happen, given the country's current account deficit has exploded to 26pc of GDP.

Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank has warned that much of Eastern Europe has been inflated by a "monster bubble" that recalls conditions in east Asia shortly before the crisis broke in 1997.

more ...

------------------------
Check out the rest of this blog here.

The UK housing crash - it is only a matter of time.

This chart tells an extraordinary story about the current state of the UK economy. On the one hand, we see household indebtedness, as a percentage of post tax income, rising rapidly. This growth in debt starts around 1998, and its growth almost exactly mirrors the housing bubble. However, interest payments, as a proportion of post tax income, have remained broadly constant.

So what has been going on with household balance sheets? As interest rates have fallen, people have more or less maintained the same level of interest payments, but taken on more debt. It is as if they have said to themselves "I can afford to pay around 8 percent of my post-tax income on interest charges and I will take on a level of debt consistent with that interest payment". So long as interest rates are falling, or remain low, this borrowing strategy did not posed any serious financing problems for households.

What did households do with all this extra debt? They used it for three things; some of it was used to buy overvalued houses; some of it was used for consumption collateralised on rising housing values (in other words mortgage equity withdrawal); and some of it was used to finance consumption through credit cards. For the UK economy as a whole, this borrowing binge sustained growth for the last nine years. However, inflation started to creep up, and interest rates are beginning to increase.

more ...