UK Housing: Another leg down

- "There has been further evidence published this week to suggest that the UK housing market is slowing. A number of house price indicators have fallen over recent months, while we have also seen evidence of weaker activity."
- "Real house prices have not fallen as much relative to their 2007 peak as they did in the early 1990s correction. In the initial adjustment they did fall more sharply, but subsequently gained ground to stand ‘only’ around 20% below their highs (they fell by a total of 35% during a period of over six years in the 1990s). However, we think there is further to go in the adjustment, and after remaining broadly static in 2010 we see a 5% nominal decline in 2011."
- "However, with net new lending at exceptionally low levels, our credit impulse analysis suggests that there may be resistance to house prices falling any further without an absolute decline in the level of mortgage debt. This partly explains our forecast for relatively modest price falls next year. While there is a limit to how far nominal house prices might decline, real house prices could well fall for some time thereafter."
- "Also in this week’s Focus Europe, we look back at the latest ECB decisions. As far as liquidity is concerned, there is an underlying keenness for exit in principle, but the ECB will be led by the markets. As far as monetary policy is concerned, rate hikes are not imminent. We see the first hike in mid-2011. In our Euroland Review and Outlook we also present a schedule of fiscal and other policy events through September and October with the potential to create volatility around euro sovereign debt markets. We examine a range of monetary conditions indicators for Poland and find none suggests a need for imminent rate hikes. In our inflation outlook we explore the two key and counter-veiling forces likely to impact on inflation forecasts—declining growth and rising food prices."

DeutscheBank Focus Europe 20100903

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