Monday, 11 June 2007

UK housing market 50 percent overvalued.

What??? A worldwide housing slump? Britain is “one of the most exposed markets”. The UK market is over 50 percent overvalued. I fear that ABN Amro, the bank responsible for such wild claims, is exaggerating.

ABN fears world housing crash

Soaring borrowing costs could spark a housing slump on a 'global scale', investment bank ABN Amro has warned. Families have taken on 'unsustainably large' mortgages, leaving them vulnerable to the sharp increases in bond yields and official interest rates seen in recent weeks, wrote economist Dominic White. Britain is one of the most exposed markets thanks to rampant speculation over the past decade, though it is by no means alone.

Claims that shortfalls in the supply of new homes will lead to an inexorable rise in UK property prices in coming decades have 'as much credibility as Britney Spears' latest comeback,' he wrote.

'The decline in global interest rates has now been largely reversed,' White said. 'Rising real interest rates could result in greater economic volatility. I believe this leaves housing markets vulnerable to a correction on a global scale.'

Central banks have raised interest rates to the highest level since 2001 across the 30 members of the Organisation for Economic Cooperation and Development. Meanwhile yields on government bonds - a key measure for the cost of borrowing - have increased in recent days, sending shockwaves through financial markets.

Although fears for the health of the US housing market have captured headlines, the degree of over-valuation is more 'severe' in Britain, Australia, Spain and Ireland, ABN Amro calculates. A note by the bank in April found that UK residential property is 50% overvalued, whereas US houses are 25% too expensive.

The research comes ahead of a slew of key data that will expose the health of the British economy. Among the most significant reports will be official inflation numbers due on Tuesday. Economists expect consumer price growth to ease to 2.5%, but even a larger drop is unlikely to prevent further hikes by the Bank of England.

1 comment:

Kevin said...

At least one economist realizes prices will be coming down. I can agree with the US 25%, but is it really as bad as 50% in the UK?