CNN: "Homes: U.K. went cold; U.S. could too" (Real Estate Bubble Bursting)

[leveymg]

Homes: U.K. went cold; U.S. could too

U.S. homeowners can learn a lot from the housing slowdown in the U.K. market.
May 4, 2005: 4:58 PM EDT
Sarah Max, CNN/Money senior writer


SALEM, Ore. (CNN/Money) – Americans aren't the only ones who've gotten rich off real estate. In fact, home price gains in the United Kingdom dwarf those of the United States.

Between the fourth quarter of 2000 and 2004, U.K. home prices increased 88 percent, on average, according to the Halifax house price index. U.S. home prices, meanwhile, increased 35 percent during that time, according to the National Association of Realtors.

<SNIP>

Then, with little warning, the market cooled.

"It was rising at a 20 percent annual rate and then suddenly stopped in its tracks," said John Calverley, chief economist and strategist of American Express Bank in London and author of "Bubbles and How to Survive Them."

<SNIP>

Lesson: Housing woes affect the rest of the economy
The U.K. housing market hasn't gone bust. But homeowners can no longer rely on double-digit price gains to prop up their standard of living -- and that reality is trickling through to the rest of the economy.

According to an article in the Financial Times, High Street retailers are finding a "sober mood" among consumers, while demand for big-ticket items, such as cars, has dropped off sharply. Households have suffered from a "money illusion," said one economist quoted in the article, and are only now realizing that they actually aren't richer.

"You have a lot of people here consuming housing wealth," said Skinner explaining that some homeowners are either spending their home equity or saving less because they assume their rising property values will fund their retirement for them. "Even just a slowdown in appreciation would probably impact spending," said Skinner.

The collapse of a real estate bubble is what started the 15 year long recession in Japan. It's finally happening, and its not just here. The rolling economic brownouts have led to a global climax. No more markets to over-inflate The center is not holding. From here, there is only collapse . . . War is the standard last-ditch measure.


:bounce: :bounce: :bounce: :bounce: :eyes: :freak: B-) B-) B-) :dunce: B-) B-) B-) :freak: :eyes: :bounce: :bounce: :bounce: :bounce:

[newscott]

1. But you already had to be pretty wealthy to even own a house

in England no? And on the continent it's even worse, no?

[henslee]

2. you like a to use da word no, no? you a from italy, no?

but seriously, i have been watching these guys here in ny on cable called THE STOLLER REPORT -- a bunch of real estate guys who get together and talk once a month -- a great show. They were talking about how much of what is driving some residential markets is speculation and not homeowner purchases -- things could fall off quite quickly if interest rates took a bump along with a few other economic factors. They also spoke about how many inexperienced speculators are now trying to manage bought residential and commercial properties and could very well be in over their heads when things start to cool off.

[leveymg]

3. Not a sure sign of a class enemy, not in my book. No.

When homelessness and uprootness are all around, the revolution is nigh. Not quite there yet. No?

:bounce:

[muriel_volestrangler]

4. No, not that wealthy

The proportion of the population that own their own home has been gradually creeping up over the last two decades, from 54 percent in 1981 to 68 percent in 2000. However, most of the increase in owner occupation occurred during the 1980s, which is partly a reflection of the introduction at that time of the right to buy local authority housing. The proportion reached 67 percent in 1991, from which it has since increased by only 1 percent.

http://www.themovechannel.com/sitefeatures/viewpoints/social10.asp

The rate of ownership does tend to be smaller on the continent, I believe, though it's not necessarily a matter of wealth - I think it may be that the rents of private houses aren't as exorbitant as they tend to be in the UK. I think the transaction costs of buying and selling are high in many continental countries too, so many people don't buy until they're settling down for many years.

And a link to the original article (which is actually a couple of weeks old, not Breaking News): http://money.cnn.com/2005/05/03/real_estate/investment_prop/lessons/

[tenshi816]

9. No, you don't have to be wealthy

to have a house in the UK. Having said that, though, house prices have been pretty crazy since I moved to the UK (19 years ago today!).

My boyfriend and I bought a one-bedroom flat in London for £43,000 in 1987 and sold it for £74,000 three years later to move to a small 1840s cottage in Oxfordshire, which we then sold in 1997 for £40,000 more than we paid for it.

We moved to Yorkshire that year and bought a 5 bedroom/4 bath house for much, much less than we would've had to pay for a comparable house in the south of England (HUGE difference in property prices between the north and south). We decided to re-mortgage earlier this year to get a better interest rate and discovered that our house is now valued at almost exactly double what we paid for it in 1997.

Like I said, crazy. There's no way this can continue indefinitely. I expect something like what happened back in the early 90's, when the bottom fell out of the market and you had loads of people selling their homes for a whole lot less than they paid for them.

[magellan]

5. We had a house in England

800 sq ft, terrace style (row house), 50 miles outside of London within walking distance of rail service. It cost £33K in '86. Our asking price in May '02 was £96K. By the time we left a few months later, its value had increased to £105K. All the houses in that neighborhood are now worth £140-ish and holding.

Imagine -- the equivalent of $250K for a TINY little home with a little patch of grass out front and a 40' X 15' back garden. (Our next-door neighbors made it worth 10 times that.)

The UK boom is over.

[0007]

6. Everything comes to an end...there will soon be plenty of repaired

bridges to sleep under!

[drduffy]

7. just think how much homes will be worth

when peak oil hits or when the war for global domination heats up further. Flushed down the commode.

[leveymg]

8. War Pushs Down Housing Prices so that Soldiers, Defense Workers and First

responders, and government contractors might be able to afford them. Of course, these occupations would be the only people still working in America.

Law of Supply and Demand.

[tanyev]

10. Suffering from a money illusion.

That's good. I think it describes the US very well, too. Just hasn't become apparent to a lot of people yet.