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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Les H who wrote (6831)11/15/2002 10:05:03 AM
From: zonderRead Replies (1) of 306849
 
Re UK housing crash?

I looked into this some weeks ago in a global search for stocks to short. In short:

It appears highly probable that the strong upwards momentum will not continue into the coming quarters. However, a "crash" reminiscent of 1989 does not seem very likely at this point, due to the following reasons:

1) Low unemployment - Jobless rate is at 3.1% as at the end of October, which is the lowest level in 27 years. People with jobs tend not to default on their mortgage payments, especially in low-interest rate periods.

2) Strong economic data & interest rates unlikely to increase - UK economy is doing far better than US and Eurozone. I doubt if they will pull down the interest rates, and there is no reason why they should increase them. I saw a model of UK economy that concludes that interest rates would have to double to 8% in order to trigger a mortgage market crash. This does not appear likely at this point, at least in the coming 12 months.

3) Low ratio of mortgage payments to income – This is the most important point. Despite increasing house prices, the key factor sustaining the market has been the steep decline in mortgage rates due to lower interest rates. In fact, annual mortgage payments on average have declined by GBP 2,000, and the ratio of mortgage payments to income is only about 32%, far below the 75% reached at the time of the crash in 1989.
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