U.K. housing slump
U.K house prices fell by 1.1% during April, the first year-on-year decline since 1996. Compared to the long term trend, real U.K. house prices is currently 25 % higher.
The last time U.K. house prices peaked was in Q2 1989. Back then, prices reached a level of 33% above the historical trend. Even if current levels are not as high relative to the long term trend as they where in the early 90’s, economic conditions are arguably worse this time.
Like U.S., the U.K. economy are now only starting to experience the effects of historical credit expansion, that has been fueling the housing sector since the late 90’s. This is primarily the result from lax monetary policy in the past, that has created economic dislocations, especially in the financial and manufactoring sector.
Housing cycles are often long lasting. After prices had peaked in 1989 it took 13 years until prices had reached the same level again. If we take into account that prices tend to overshoot the trend, we should prepare for quite a long lasting slowdown, this time.
