Housing market to plunge

The Motley Fool has an article that claims to show why the next house price recession will be much worse than the last. The 1990s recession saw prices fall by around 11% over a 6 year period. A period when general inflation averaged 3 to 4% per annum. The article is written by Chris D'Arcy. D'Arcy sold his house last year and now lives in rented accommodation.

D'Arcy list 10 reasons for his views.

1. Consumers are overspending without care. On average 10% more than they're earning.
2. Household bills are soaring. Gas, electiricty, council tax etc are rising by 7%.
3. Mortgage debt has risen by an average of 8.5% per year over the last 9 years.
4. Non-mortgage debt has exploded. Rising by 11% per annum over the same period.
5. Mortgage equity withdrawal has soared.
6. Wage inflation has average just 4.2% over them same period. An average house now costs 6 times the average salary.
7. Meanwhile the savings rate has plunged.
8. Interest rates remain historically low and can only go up. Another 0.25% rise is probably due very soon.
9. The social security net for home owners has disappeared.
10. Private insurance to cover mortgage debt is, in his words, pants.

I would also add two more factors.

1. Much of the early part of the house price boom was fueled by the buy to let market. As soon as novice landlords realise they're onto a loser they will bail out in droves.
2. Speculation versus panic. Sentiment is very important in markets. For many years people have talked up the market and the market responded. Now people are talking the market down.

Another jump in UK house prices

A report in the Financial Times shows that UK house prices continue to rise. This despite the threat of higher interest rates. The report is from Nationwide, the UK's largest building society. According to the Nationwide, prices rose 1.3% in September and now stand 8.2% above a year ago. This rise compares with a 3% inflation rate and may tempt the Bank of England to raise rates a further quarter point.

To read the FT report, click on the post title.