Anorak News | Credit Crunch: American House Prices Fall But Don’t Panic

Credit Crunch: American House Prices Fall But Don’t Panic

by | 28th, September 2007

foreclosure.jpgNEWS from across the pond on the credit crunch. House prices are going into free fall:

Sales of new homes in the US plunged in August at the fastest rate since modern records began, prompting fears the economy is sliding into a full-blown recession.

Total sales dropped 8.3pc on the month and are now down 21.2pc during the past year, a sign that the credit crunch has cut off mortgage funding for large numbers of people. JP Morgan now expects sales to fall by more than half from their peak before touching bottom well into next year.

This isn’t entirely a surprise. In fact, it’s not a surprise at all, it’s a blindingly obvious result of what’s been going on. The thing is that rising asset prices (and bubbles in them) and easy credit are not two different things. They’re actually cause and effect. Take away the easy credit and the asset price bubble will collapse. Not might but will.

Now before everyone goes out and puts not only their house but the dog kennel and the rabbit hutch on the market to beat this there are a couple of things different here in the UK.

Easy credit in the US came from two sources: low interest rates (for several years, real rates, ie after inflation, were negative) generally and also an expansion of the offering of credit to lower income groups.

Here in the UK we’ve only had the second of those two factors so any crash (yes, I know you won’t believe me) should be smaller. We also have an idiot planning system which prevents new housing from being built which will also shore up prices.

So far the advice is probably worry, but don’t panic.

Posted: 28th, September 2007 | In: Money Comment | TrackBack | Permalink