Housing slump demolishes builders' profits

Housing slump demolishes builders' profits - at Moneyweek.co.uk - the best of the week's international financial media.

We have long been worried about house prices here at MoneyWeek. But last May, we finally got worried enough to run a four-page feature (by James Ferguson) explaining why the house price bubble had pretty much run its course. Six weeks later, the rate of house price growth started to slow and it's been falling pretty much ever since. It's going to keep falling, says Ferguson. Given that transactions are down 25% on last year, the stock of unsold property is up 29% on last year and asking prices are falling (down 1% lastmonth, according to Rightmove), "it seems inevitable that next month's growth number will be negative," says Ferguson. House prices will then have dropped on a year-on-year basis for the first time in ten years. Ferguson remains convinced that this is a trend that will only get worse. Extrapolate from today's numbers, he says, and they imply that, by March next year, prices will have fallen by double digits in year-on-year terms.

Look at recent economic statistics and it is hard to disagree with him. As Nick Mathiason points out in The Observer, "never have British consumers been as overextended as they are today". Interest rates may be relatively low, but capital repayments on homes, loans and credit cards mean debts as a proportion of income are higher than they were in the late Eighties, and in the first quarter of this year individual insolvencies rose 23.7%. There's bad news in the corporate sector too, with profits warnings all over the place and winding-up petitions rising 10% in the first quarter of the year. Unemployment has now been rising for five months and economists at ABN Amro think it could go up by 500,000 in 18 months. Unemployment hardly helps household finances, says Mathiason, "and if there is one thing that sparks a housing meltdown, it's a forced seller".

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