Has the bubble burst for UK housing boom?

According to the IMF's economic outlook, property prices have climbed at a faster rate than any other industrialized country but "will probably slow significantly in the next 18 months."

The report says the UK leads the way for the highest increases, but the threat of interest rates could "trigger a much larger downward adjustment in house prices, with considerably more severe consequences for economic activity."

Healthy increases and a similar future were also seen in Australia, Ireland and Spain – countries where rates threaten to have an identical market impact.

Based on previous rate rises and economic trends in the UK, the IMF said it appears the market would slow significantly, while a fall in real prices "cannot be ruled out."

The impact of further rises from the Bank of England was predicted as something that would particularly be felt because of the UK's prevalence of floating rate mortgages.

Published minutes from the Monetary Policy Committee reveal the Bank has already met to discuss rates for September, but has agreed on a no-raise outcome.

The IMF said that while different factors explain the price rises in industrialised nations, in the end and over thirty years, prices have been synchronised.

The same pattern is due, says the IMF outlook, if the drop in prices continues.

It warns that just as "the upswing in house prices has been a global phenomenon; it is likely that any downturn would also be highly synchronized, with corresponding implications for global economic activity."

The news comes as Deputy Prime Minister, John Prescott, has called on the housing and building industry to cut the cost of home building.

He said over the past seven years the cost for new affordable housing was "unacceptable" and had risen by over 60 per cent.

Before his National Housing Federation Speech, he said: "Why does it cost so much to build bloody houses in this country?"

Earlier this week, Freelance UK reported how the cost of a house has fallen from an estimated £160,000 to about £152,000 – according to Hometrack figures.

 

24th September 2004

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