The real estate troubles we've been experiencing here in the U.S. aren't at all unique to us. Many a European flat, chateau, and villa experienced a similar or greater bubble during this decade, and they're now starting to retrench as well. Home prices are falling and mortgages are more difficult to come by as many banks are (rationally) requiring higher credit standards and larger down payments, if they're willing to lend at all.
Britain seems to be just a bit behind us on this credit/housing unwind. Discretionary spending is likely to at least moderate as credit availability suffers and inflation continues to rise. We should expect to see a slowing in European real economic growth. The most interesting question just may be how our recession and a slowing in Europe would affect Asia. I'll address this in another post.
The Europeans do have one big advantage over us. If things get really bad for them they can take advantage of the weak dollar, move to the States, and buy a mansion in Cleveland for what it costs them to fill an SUV back home. Of course, they'd have have the distasteful choice of working as either as debt collector or a political strategist since these are about the only jobs available here.
From the TimesOnline:
House prices fell for the second consecutive month in March, according to official figures released today.The Land Registry figures, which show that the average cost of a home in England and Wales dropped by 0.4 per cent in March to stand at £184,798, will add to growing fears that the UK is about to suffer a significant slump in the housing market.
The Land Registry also revealed that housing market transactions averaged 81,926 a month between October 2007 and January 2008, which was down 25.5 per cent year-on-year. Sales volumes were also weakening more markedly at the end of this period, as they were down 39.2 per cent year-on-year in January at 53,221.
Howard Archer, chief UK economist at Global Insight said: "We now expect house prices to fall by 7 per cent in 2008 and 9 per cent in 2009. Furthermore, the longer the credit crunch goes on and the deeper and longer the UK economic slowdown is, the greater the danger will be that an even sharper housing market correction will occur.
"Current rapidly deteriorating sentiment over the housing market also heightens the risk that house prices could fall more sharply over the next couple of years. Consequently, it is very possible that a drop of more than 20 per cent in house prices could occur over the next couple of years.
The official figures came as a leading estate agent suggested that house prices could fall by as much as 25 per cent if the credit crunch persists, with the market declining by 10 per cent this year and by a further 15 percentage points in 2009.
From the BBC:
The slowdown in the UK mortgage market continued in March, according to figures from the Bank of England.It said the number of new mortgages approved for house purchases in March fell to a record low of 64,000, down from 72,000 the previous month.
This was the lowest level since the bank started collecting the data in April 2003, and was down 44% on the figure for the same month in 2007.
However, credit card and other lending increased in March from February.
A global credit crunch has caused lenders to put up prices on mortgages and withdraw mortgage deals, especially for those unable to put down a significant deposit, in recent months.
The credit crunch, when banks are less willing to lend to each other and consumers, was caused by problems in the US housing market, which saw a surge in mortgage defaults and a drop in property values.
In the UK, property prices have also started to dip during 2008, according to various housing surveys.
"The news that mortgage approvals dropped to a record low of 64,000 is hardly surprising given that lenders have been aggressively scaling back on the provision of finance to homebuyers," said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).
The Bank also reported a drop in loans approved for remortgaging, down 11,000 in March from the previous month at 98,000, and for other purposes such as buy-to-let, down 6,000 at 57,000.
