House prices may fall by up to a quarter over the coming years, one of Britain's top economists said yesterday. Prof David Miles, who prepared a report on mortgages for the Chancellor in the last Budget, said growing concern about the property market could be enough to send it over the edge and into a crash. "A significant fall in nominal house prices is not implausible," he said, before adding that houses currently seemed to be overvalued by as much as 25 per cent. "It does not require some trigger - a rise in interest rates or in unemployment. Expectations of a degree of over valuation becoming widespread can itself be the factor driving prices down."
The comments from Prof Miles, a visiting professor at Imperial College and the chief British economist at the investment bank Morgan Stanley, coincided with official figures confirming that mortgage approvals had dropped to their lowest level for more than four years. The Bank of England said banks and building societies lent £7.7 billion in mortgages in September, considerably lower than the £8.4 billion recorded in August. Mortgages approved also dropped from 95,000 to 89,000 - the lowest since August 2000. Britons also borrowed less on credit cards and through overdrafts, the Bank said, adding that consumer credit grew by £1.6 billion, compared with £1.9 billion in August. The numbers are further signs that households are struggling under the weight of their debts, with the total amount now owed by the British public up to £1,032 billion. Ed Stansfield, a property economist at the research group Capital Economics, said: "The figures suggest that not only has housing demand cooled over recent months but also it has cooled at a very rapid pace.
This developing situation could cross the pond and begin to effect the American inflated housing market in the 1st or 2nd quarter of 2005. Energy costs are begining to take a bite out of formerly strong performing sectors. |