There was further evidence of a slowdown in the US housing market yesterday, as sub-prime mortgage woes contributed to existing home sales falling 8.4% in March, the largest monthly decline since records began in 1999 and significantly below expectations of a 4.3% decline.
The US is not the only country with a wobbly housing market – Spanish house price inflation slowed to an annual rate of 7.1% in Q1, down from 9.1% in Q4 2006. The Bank of Spain has previously said that the Spanish housing market is 40% overvalued and fears of impending doom saw Spanish real estate stocks close as much as 25% lower yesterday. Concerns have spread to the Spanish banking sector, much of which is hugely levered and has considerable exposure to the real estate sector. Meanwhile, Denmark yesterday announced that house price inflation slowed to 1.2% in Q1, a fairly worrying slowdown considering that Denmark had the strongest house price inflation in Europe in both 2005 (20%) and 2006 (20%).
So far there is no evidence of a slowdown in the UK housing market, and the pressure is therefore on the Bank of England to raise rates. But if housing markets around the world continue to stall then global growth will inevitably follow, and this is something we are keeping a keen eye on.