The bubble bursts

HOME renovation would seem to be as exciting a spectacle as, well, watching paint dry. But as Britain neared the peak of a decade-long housing boom, it became prime-time television as producers rushed to make shows like “Property Ladder”. Those happy days in which acquiring a house seemed a sure bet have now ended and even the boost of a quarter-point rate cut from the Bank of England on April 10th is unlikely to bring them back.

From The Economist print edition - Apr 10th 2008

Prices, which had been drifting slowly lower over the winter, have started falling more rapidly and dropped 2.5% in March, according to Halifax, part of HBOS and the country’s biggest mortgage lender. The biggest monthly drop since September 1992 prompted widespread concerns in a country that still remembers its previous big bust, which started in late 1989 and from which prices did not fully recover for almost a decade.

Mortgage lenders and Labour politicians (see article) have talked down the significance of the drop, arguing correctly that monthly data is volatile and that other indices show a very different picture for the month. The Nationwide Building Society, another large mortgage lender, thinks that prices fell just 0.6% in March. What really matters is the annual rate of growth, which has slowed to 1.1%, the lowest since 1996, according to both lenders.

Worryingly, both estimates may already be out of date. Their data, which show that house prices have fallen about 4% from their peaks, are based on mortgages that are approved by lenders. Yet mortgage approvals capture only a portion of purchases—about a quarter of properties bought each year are paid for in cash—and take place only some weeks after a price is agreed. “The Halifax is behind where we are in the market,” says Marc Goldberg of Hamptons, an estate agent. “The prices we’re getting now are about 10% down from the peak last summer.” - full article