Ominous signs in the U.K. housing market

Posted by: Amey Stone on July 14, 2005

I met today with Pamela Holding, portfolio manager of Putnam Investments’ International Growth and Income Fund (PNGAX). She has been keeping watch on the U.K. and Australian housing markets to get a sense of what might unfold in the U.S. when the boom cools.

Both England and Australia are in a sense a few steps ahead of the U.S. housing markets in that they both started to raise interest rates well ahead of the U.S. and are now finished, she says. She has been encouraged that, although both markets have cooled, neither had shown a marked drop-off in activity.

However, she got a start this morning when she heard a report that English home builder Bovis Homes Group PLC had warned that weakness in the U.K. housing market was hurting its results.

The company's July 14 release contained these statements:

"Consumers are showing caution, contributing to property transactions in England and Wales in the first quarter of 2005 being 24% lower than the corresponding period in 2004."

It goes on:

"Looking forward to the second half of 2005, there remains considerable uncertainty over the robustness of the UK housing market."

And near the end notes:

"New housing represents a credible choice for house purchasers with low maintenance, well specified properties; however, it is a challenge for housebuilders to sell into a marketplace where purchasers are lacking in confidence."

Holding says the news gave her a bit of a start this morning. "We could be at an inflection point," she says, where signs of serious weakness in the U.K. market will start to become more apparent. This clearly bears watching.

Reader Comments

Wes

July 15, 2005 5:17 PM

"The Economist" has had some good articles regarding the housing bubbles and how Britain and Austrailia have finally popped and the economy is quite weak in GB as a result of consumer/business skittishness.

The one bold prediction that made a lot of sense to me was "the housing bubble is the biggest illusion of wealth in history".

It's just a matter of time until the problems make it across the oceans. They always do. WW1 & 2, Mad cow disease, the asian financial crisis of 1998, etc. I read in one article that stated wealthy people were pulling large sums of money out of the housing market. Ominous sign? You bet.

Wes

July 18, 2005 10:22 AM

It's important to remember that bubbles take years to unwind. It won't be "POP". UK & Austrailia are probably a year ahead of us...their downturn started last summer.

It will likely be quite a bit worse (economic ramifications) than most people have led us to believe; the same people predicted the 2001 recession would be the mildest is history, when in effect it turned into the worse since the great depression.

There has been some talk lately about a depression as a result of the "pop", but I disount that theory. Yet I believe a depression is more likely than double digit price increases for the next 10 years. (same as today)

John Douce

July 21, 2005 5:24 AM

The main 2 factors in the UK are
1. Employment, there is little unemploment, it is increasing but slowly. There is a reduction in incomes for a few.
eg. As skilled workers are made redundant some have to take low paid jobs as security guards etc.

2 The strongest factor for house demand and it is a plus factor is DEMOGRAPHICS. In addition to natural birth rate the young adult population is growing by immigration, some legal some not.
People are living independant lives for longer
than previously.

My conclusion: there will not be a dramatic crash. However it may be 2 or 3 years before the general price graph resumes the upward climb.

Paul Roberts

August 8, 2008 6:05 PM

John, the housing market is not driven by the demographic trends or employement. It is driven by the affordability. Over the last 10 years the housing market has gone up by 140% whilst the salaries have gone up by 25%. At some point things need to xcome back to hearth.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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