From: The Market Oracle

The Halifax's latest house price data shows that the housing market crash continued to accelerate into August, plunging by 1.7% that saw another £3000 wiped off house prices following the £3,300 write off for July to stand at down 12.8% on the year to August (on a non seasonally adjusted basis). UK house prices have now fallen by more than 8% since April. If a fall of 8% in 4 months cannot be considered a crash in UK house prices than I do not know what can. No wonder Chancellor Darling virtually threw in the towel during the weekend in his famous "I give up, please let me spend more time with my family" speech.

The housing market's near 13% plunge in 12 months is having a severe impact on the whole of the UK economy, as falling house prices are directly impacting on the Uk economy in a like for like basis, after the Financial Sector those sectors closest to the housing market contracting the sharpest, followed by consumer sector and eventually echoing out through the economy. The only glimmer of hope is for the exporters as the British Pound itself crashed during the past few weeks.

Britain is facing the the PERFECT STORM of DEFLATION as the housing bear market erodes home owner equity by several thousands of pounds every month, and INFLATION in the input and output prices surging to 20 year highs. This has meant that instead of taking action to save the economy, save the housing market, the Bank of England has been paralysed since April of this year into inaction. The fact is the Bank of England does not have a clue of what to do so seeks to do nothing as the situation is far more complex than it appears on face value given the hidden fact that most of the banks are bankrupt, insolvent !, its just that no ones going to tell the public, instead the banks coast from quarter to quarter announcing ever larger bad debt provisions and calls for government tax payers cash in exchange for near worthless mortgage backed illiquid toxic putrid slime that continues smear itself right across the whole financial and economic system. Therefore Britain is being pushed into a deep dark stagflationary recession which we look set to enter by the end of THIS year.

In the meantime, Gordon Brown in a panic and in the face of open rebellion from cabinet members such as his own right hand man Chancellor 'Et tu Brutus' Darling to introduce emergency measures in an attempt to halt the crash in UK house prices so as to prevent the meltdown in the UK economy and with it any hope of Gordon winning the next general election.
 

Where Do House Prices Go From Here?    

The existing forecast for a minimum fall at the rate of 7.5% per annum as of August 2007 is now due for imminent update to extrapolate a trend for UK house prices for at least 2 years forward, in additional to and preceded by updates to the UK interest rate and inflation forecasts.

Whilst these are yet to be fully completed and published, I can give a quick outlook for UK inflation and interest rates and that is for inflation to peak later this year which will be immediately followed by deep UK interest rate cuts into late 2009. The outlook for UK house prices is much trickier and I will leave the conclusions for the published article as the housing market has to contend with multiple factors each tugging house prices in both directions for instance, sterling falling by 10% in a month is highly inflationary and would tend to support house prices as your house in dollar terms has not fallen by 1.7% in August but rather 11.7%!. Another positive factor in terms of nominal house prices is the impact of the panicking Brown governments interventions into free market pricing by engineering a bottom in nominal house prices. More on these and other factors in the forth coming housing market forecast.

By Nadeem Walayat

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