Why We Should Care About UK Housing Prices
Thursday, September 9th, 2004
By Michael Lombardi, MBA for Profit Confidential
Recently, I wrote about my trip to London, England and how housing prices there, in my opinion, were getting out of control. I commented about how home prices in London had peaked and how the market was starting too cool.
After five consecutive rate increases by the Bank of England, the question became a matter of not “would prices start to ease?” but “by how much would home prices start to fall?”
I was anxiously anticipating the August UK homes sales figures to be released, and as anticipated, activity has cooled substantially:
— UK house prices fell by 0.6% in August from the month before. This was the first fall in prices since August 2002.
— UK house prices are now rising at their slowest rate in three years.
A UK think-tank by the name of Capital Economics was quoted as saying its prediction of a 20% fall in UK house prices, beginning in the second half of 2004, was on track.
Alex Bannister, chief economist at UK-based Nationwide said, “The weight of evidence suggests that housing market activity has slowed more markedly than price.” Of course, I say. First activity slows, and then prices follow down.
Why should North Americans care about the prices of homes in the UK? Because if it can happen there… it can happen here. The bulls on UK housing told me house prices in the UK can only rise because supply is limited. But, as now is being demonstrated, limited supply, at a certain point, does not necessarily mean higher prices.
Sales of existing U.S. homes fell by 3% in July. Mortgage applications in the U.S. have also begun to fall while the inventory of newly built homes is rising. In Toronto, which is my Canadian gauge of activity, the average price of a resale home has actually fallen 6.5% in the last three months. I write about the housing market for several reasons. First, to help real estate investors better plan for their future investments. Second, to help home buyers that plan to trade-up decide on timing. And third, but most importantly, because construction and real estate has been the last “proverbial” leg left holding up our economy. If activity in the housing market starts to deflate, our economy will be in real trouble.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
