UK housing market numbers once again fell short today, which is not surprising given the sparsity of credit and falling mortgage approvals (see our most recent blog comment on mortgage approvalshere – note that our mortgage approvals chart is now predicting year-on-year house price declines of 20% by January 2009).
Today we are going to focus on the speed of decline. During the last housing market crash in the early 90s, it took over three years for house prices to fall by 10% from their peak. Contrast this to the current crisis – figures released by HBOS today show that UK house prices have fallen by 10.2% in the last six months alone. This is important because the speed and size of this shock should be a determinant of the size and speed of response in the real economy. It would normally also determine the size and speed of the response of the government and monetary authorities, although the government is hamstrung by spending rules, and the monetary authorities are cramped by inflation.
Why is it so much quicker this time? The nature of the last crisis was the over-extended borrower (ie the inability of borrowers to pay their mortgages). The same applies this time, but we also have the over-extended lender. And the pace and magnitude of the decline may be further exaggerated this time by the lack of a safety net for homeowners (we touched on this back in April).
The Olympic motto is Citius, Altius, Fortius, or ‘Swifter, Higher, Stronger’. Sadly for the housing market it should be ……. Swifter, Lower, Weaker.