In the US, the market has done its work. In the UK, it is just getting started

I've written here before about the possibility that the US housing market has more or less bottomed. Further anecdotal evidence on this comes from Halkin's Robert Brooke, just back from a vacation in Florida.

There he was offered a nice little opportunity. In a "desirable tourist and retirement seaside town" on the Gulf Coast (which by the way is where I have fine plans of part retiring to one day), there is a modest two bedroom house for sale.

It hasn't actually changed hands for adecade but it has been valued many times. In 2001, the price was $170,000. In 2007, it was $410,000. In 2011, it was back to $170,000. Today it could be yours (or Brooke's) for $120,000. That's 70% below its peak and lower than it has been for more thanten years.

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It also comes with a gross yield of around 10% and a net of something like 5%. That's not bad when you compare it with a long bond yield of 2% (particularly when that long bond yield comes with an almost guaranteed capital loss).

As Brooke points out, buying the house wouldn't be risk free: there is still an overhang of foreclosed property for sale across the US and the dodgy state of the personal finances of many of the potential tenants poses a relatively high risk to the rental income.

In the US, distressed home sales accounted for around 34% of all existing home sales on February this year. That's down from 39% in February which is good but it does still tell us that there is on-going pain in the market.

However,what this enormousdecline in the price of our would-be holiday home tells us at least isthat "the market has done its work." It has turned an unattractive proposition into a pretty attractive one. So the healing can begin.

One sign: US housing-starts have picked up nicely in the lastfive months or so. Now turn your eyes from that dream house in Florida to the UK.

Here, the market has not been allowed to do its work. The most recent numbers from Nationwide show that house prices fell 1% in March, asmall rise of 0.4% in February. They now stand 1% below their levels of this time last year on the Nationwide numbers. Over the first quarter of the year, prices were flat or rising in only three regions of the UK. They fell everywhere else.

Now, if you've been trying to sell a house that isn't in central London or that isn't almost perfect, you'll know that to get it away, you have to bring the price down a good deal more than 1%.

But nonetheless, while prices have fallen very substantially from their peak in real terms (take inflation into account and prices across the nation are down 25% plus), if you are a buyer, you will know that they still haven't come down as much as you think they should have. Thanks to very low interest rates (which mean owners can keep up mortgage payments despite falls in their real incomes) and extensive lender forbearance, the market isn't really being allowed to do its work.

According tothe FSA, anything up to 8% of outstanding mortgages in the UK are subject to some kind of forbearance (ie, lenders desperate not to foreclose are allowing reduced payments, payment holidays, and even shifts from capital repayment mortgages to interest only mortgages).

That works in the short term in that it keeps distressed sales off the market effectively stopping the market from finding a real clearing price in the way the US market has. Still, while we know that politicians and bankers can hold off inevitable market adjustments for much longer than most people think possible (I give you Europe), they can't do so forever.

It might keep happening slowly as it is now (lenders are reporting both a tightening of credit criteria and a rise in the percentage of mortgage applications being turned down while surveyors are reporting a rise in the number of houses coming to themarket). It might suddenly happen quickly. But one way or another, real house prices will eventually revert to their valuation mean some 15-20% below where they are now.