Sunday, November 25, 2007

U.K. House Prices Fall for a Second Month, Hometrack Says

By Brian Swint


Nov. 26 (Bloomberg) -- U.K. house prices fell for a second month in November as a jump in credit costs sapped confidence among buyers and sellers, a survey by Hometrack Ltd. showed.

The average cost of a home in England and Wales fell 0.2 percent from October to 175,700 pounds ($361,000) following a 0.1 percent drop the previous month, the London-based research group said today. From a year earlier, prices increased 3.6 percent, the least since July 2006.

Analysts predict the weakest housing market in a decade next year, with borrowing costs at a six-year high and a slowdown in economic growth after contagion from the U.S. subprime mortgage market. The central bank signaled this month the economy may need at least one interest-rate cut in 2008.

``The fallout from the credit squeeze, along with relatively high interest rates, is resulting in widespread caution among homeowners,'' said Richard Donnell, director of research at Hometrack. ``It is hard to see the catalyst for any short-term turnaround in market confidence other than interest- rate-cuts early in the new year.''

Property prices fell the most in the East Midlands, where they dropped 0.3 percent, followed by Greater London's 0.2 percent decline. In central London, home values fell 0.5 percent, Hometrack said today.

Advice to Sellers

Rightmove Plc, HBOS Plc and the Royal Institution of Chartered Surveyors have also said house prices fell this month. Sellers shouldn't hesitate to lower the asking price because a more protracted slowdown is on the way, Rightmove, the U.K.'s most-used property Web site, said Nov. 19.

Prices may fall next year as a ``toxic mix'' of higher interest rates, overvaluation and record debt deters property investors, Citigroup Inc. predicted Nov. 9.

A housing shortage may limit a decline in values. Construction of new homes stagnated at 148,000 units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968. The economy is also on course to grow at the fastest pace in three years in 2007, buoying demand for property.

``Values are being supported by a continued tightening in supply,'' said Donnell. ``But the underlying market conditions remain weak with new buyer registrations down by 26 percent over the last five months.''

Bonus Cuts

As U.S. subprime-mortgage losses spread to Europe, London banks and investment companies may cut jobs and bonuses, which helped to fuel house prices over the past decade. Workers in the City, London's financial district, will invest only 2 billion pounds in homes next year, compared with 5.5 billion pounds in 2007, real estate agents Savills Plc said Nov. 5.

Britons are shouldering the highest interest rates since 2001 and have amassed record debt of 1.4 trillion pounds. The U.S. subprime mortgage slump has also prompted banks to lift mortgage rates, hurting affordability.

Home loans with a fixed rate for two years, the most popular type in the U.K., cost an average 6.37 percent in interest last month, compared with 5.41 percent a year ago, central bank data showed on Nov. 9.

Bank of England Deputy Governor Rachel Lomax said last week that there are signs that the slowdown in the housing market ``is gathering pace.''

Economists predict the central bank will cut the benchmark rate in the first quarter, according to the median of 15 estimates in a Bloomberg News survey from Nov. 22.

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