It’s worth remembering that underlying all of this economic turmoil is the collapse of house prices, and with it, the massive deleveraging of consumer-debt.
UK houses prices have fallen 14.6 per cent since this time last year, according to the latest data from Nationwide.
That’s the largest yearly decline since the Nationwide series started measuring house prices in 1974.
The typical house price fell by 1.4% in October, around the same rate as the average monthly fall of 1.3% over the last year, but lower than the monthly falls recorded in each of the previous three months. The price of a typical house is now £158,872, almost £30,000 less than a year ago, but to put in context, still almost £30,000 more than five years ago.
What’s more, writes Nationwide, market activity and perhaps even bigger falls in house prices are being contained by the reluctance of sellers to lower their prices.
Asking prices have fallen this year but the rate of decline has been significantly behind that of other measures. Consumers still expect prices to continue to fall into 2009 and will therefore be reluctant to trade without some discount on the asking price. This type of stalemate ultimately limits the number of transactions which can take place. This could however indicate that conditions are not yet very stressed, as sellers have not felt the need to dramatically reduce their prices for a quick sale.
Or in graph form:
This is sort of a nice way of capturing a peculiar and lingering sentiment right now: a sort of fin-de-siecle unwillingness to actually recognise that we are staring down the barrell of a gun. Part of this is possibly because the recession has not yet begun to truly hit businesses (watch out, perhaps, for consumer activity this winter season): corporate earnings have yet to reflect the new economic reality.
As Nationwide notes, house prices are suffering far more than they did in 1991 – and look likely to fall much further. Back then though:
…interest rates were at more than twice the level of today and general macroeconomic conditions were much worse. The economy was in deep recession and unemployment was well over two million.
Such things don’t happen anymore though, do they?
A fin-de-siecle, or at least fin-de-millénaire, mood is perhaps appropriate in its literal meaning too though. Most projections see house prices bottoming out to their 1999/2000 level:
