Ed­mund Con­way

The Daily Telegraph - Property - - Town & Country -

Like it or not, Bri­tain has be­come a hot topic of con­ver­sa­tion on the other side of the At­lantic. And if you have any con­tact with the US, you’ll know that the busi­ness and money pages of the pa­pers are also look­ing in this di­rec­tion. For the Bri­tish hous­ing mar­ket has, be­lieve it or not, be­come a burn­ing is­sue in the States.

Why all the in­ter­est? Are more Amer­i­cans plan­ning to fol­low Madonna’s lead and em­brace the tweedy lifestyle of the Home Coun­ties?

In fact, the truth is less glam­orous. The US mar­ket looks in­creas­ingly as if it is head­ing for a crash. The glut of un­sold new homes has hit record lev­els, and, in the latest sign of the des­per­a­tion of the sell­ers, es­tate agents are throw­ing in a free pool to se­cure buy­ers. While prices haven’t yet fallen, a lot of ex­perts think they might.

Amer­i­cans are tak­ing a keen in­ter­est in our own hous­ing mar­ket – and that of Aus­tralia, while we’re on the sub­ject – be­cause our slow­down has al­ready started. So far, the Bank of Eng­land has steered the mar­ket clear of a crash, while man­ag­ing to slow the pace of house-price in­fla­tion dra­mat­i­cally – though, as most of you will be aware, we’re cer­tainly not out of the woods yet.

How­ever, ac­cord­ing to economists at Lom­bard Street Re­search, the BoE’s suc­cess, so far, at pre­vent­ing a crash does not im­ply the same will be the case in the US. For one thing, the way the US Fed­eral Re­serve man­aged in­ter­est rates re­cently was in marked con­trast to the BoE. Ar­guably, the Fed waited too long be­fore lift­ing rates, and started do­ing so only once the hous­ing mar­ket ap­peared to be over­heat­ing. The BoE, on the other hand, started raised rates ear­lier, be­fore house price in­fla­tion’s peak in 2004.

Fur­ther­more, the cur­rent ac­count deficit in the US is far big­ger than in the UK – a clear sign that Amer­i­cans are hav­ing to bor­row much more to keep spend­ing than we do over here. So the States would be wrong to as­sume that just be­cause the UK has avoided a crash, it is des­tined to do so, too.

On the other hand, if there were a US crash, mat­ters could worsen here. The chain re­ac­tion would go some­thing like this: US house prices crash and, as a re­sult, Amer­i­cans stop spend­ing in their shops. The US econ­omy slows and, with fewer things be­ing sold on the high street, Amer­ica im­ports fewer goods from Bri­tain. Some com­pa­nies here are forced to cut jobs and some home­own­ers have to sell up. Voilà – a trig­ger for a pos­si­ble fall in prices.

There was also an IMF re­port not so long ago warn­ing that a crash in one hous­ing mar­ket could spark an­other on the other side of the world be­cause – thanks to glob­al­i­sa­tion – our economies are in­creas­ingly re­liant on each other.

How­ever, most economists agree that what is of prime im­por­tance for prop­erty is the do­mes­tic mar­ket. The prospects for the UK look con­sid­er­ably brighter than they do in the US, al­though with prices over here still ex­tremely high – of­ten be­yond what buy­ers can af­ford – Bri­tain is not yet out of the woods. Þed­mund.con­[email protected]­graph. co.uk. Ed­mund Con­way is Eco­nomics Ed­i­tor of The Daily Tele­graph.

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