IMF Warns Of House Price Collapse; prices are in danger of collapse in UK and U.S.

Reuters ^ | 09-18-03

[Brian S]

Thu 18 September, 2003 14:00 BST By Anna Willard

DUBAI (Reuters) - Soaring house prices are in danger of collapse in countries like the UK and U.S. once interest rates rise on better growth prospects, the International Monetary Fund has warned.

The IMF comments came as Bank of England Governor Mervyn King said on Thursday there were signs UK house price gains are slowing and a day after the U.S. government reported a slide in house building in August.

The fund's chief economist Kenneth Rogoff told a press conference the economic recovery may push up long-term interest rates. The expected rise in borrowing costs means there is a "significant possibility of a housing price bust in some countries, especially if low interest rates pick up."

In its latest assessment of world economic health, the IMF cited Australia, Ireland, the Netherlands, the United States and the UK as particularly vulnerable to a home price fall. House prices in many countries have surged as buyers rushed to take advantage of low interest rates.

PILLAR OF THE ECONOMY

Mortgage refinancing and consumer spending on household products to decorate new homes has underpinned the economic recovery in many countries hit by lacklustre business activity.

"Over recent years, rising property prices in the United States and especially in the United Kingdom have offset the downward pressures on household spending from the fall in equity markets," the IMF said.

Economists worry this pillar of economic strength could crumble under the pressure of rising rates and damage the recovery.

But there are signs the U.S. housing market is still relatively robust. Even though the U.S. Commerce Department said on Wednesday housing starts fell 3.8 percent in August, building permits and mortgage applications are on the rise.

The department said permits to break new ground for single-family homes jumped 2.9 percent to a record high while a separate report by the Mortgage Bankers Association of America showed applications rose in the last week.

And while King told a parliamentary committee on Thursday that "there appears to be a pause in house price inflation", he also said he wasn't sure how long this would last.

King said the Bank of England's central projection was that house price inflation would slow to zero in two years' time.

[AntiGuv]

No one will pay any attention to such warnings so long as the 'jobless' stock market bubble recovery is charging ahead full throttle..

[Just mythoughts]

This is like a prediction "we are going to raise interest rates so look out for coming collapse.

[Smogger]

I bought my house in Ontario, CA for 177K in 2000. It appraised for 350-375K this month.

The Inland Empire was the last best place in So California to buy affordable housing.

You can't get a dog house here for under 200K today.

[A. Pole]

I bought my house in Ontario, CA for 177K in 2000. It appraised for 350-375K this month.

Sell it.

[Brellium]

"We" do raise interest rates, it's called the bond market, most long term rates are based off the 10 year note.

Little as people recognize it, the Fed rate as about as much influance in our economy as clicking a pair of ruby shoes togeather and saying "I wish..."

[djf]

All those rate cuts in a row was total fiscal mismanagement. They shot their wad, now they have no wheres to go but up. And if it goes up, all Hades might break loose.

[Just mythoughts]

So what does the IMF have to do with raising interests rates?

Specifically in the US, or is the whole world not connected?

[Just mythoughts]

So what does the IMF have to do with raising interests rates?

Specifically in the US, or is the whole world not connected?

not = now

[Just mythoughts]

So all aspects of the markets are now mismanaged?

[djf]

It's only worth what somone is willing and able to pay. I imagine if 15 of the H1B visa holders making ten dollars an hour each, over in the Valley got together, they might be able to afford your place. Rising real estate costs and falling or stagnant job markets is a ticking time bomb.

[Eva]

He's right, sell it now, and whatever you do, don't touch that profit. It could be disastrous if you borrow on the principle and the prices drops dramaticly. California is a tough market to the figure because there are so many renters, waiting to move into the market, but prices can't continue the way they have been.

[OldFriend]

Just a hoping and a praying for any bit of bad news to disseminate.

A pox on Roto REUTER

[djf]

Didn't say that. But our economy is a credit economy. It depends on new money creation via credit expansion. The derivative and hedge fund type investments are leveraged to the hilt, as are most businesses and individual consumers. All the rate cuts left them with no way to stimulate borrowing.

[novacation]

Location,location,location

[Just mythoughts]

Ok, thanks just wondered if this is another ENRON etc., waiting to happen so the liberals can blame Bush.

[narby]

I can't believe the panic around here.

I watched the housing market in Houston, which had been horrifically overbuilt, hang on to almost all of its value.

Sure, there were neighborhoods where practically all the houses were for sale. But no one came down dramatically on their prices. Maybe %15-%20, but that's it.

The housing market isn't the stock market, where most sane people only put their cash into their investment. Most people borrow almost all the value of their house, so they CAN'T accept less to sell. Thus, the housing market stays relatively stable.

And in the mean time, with the economy rebounding, there will be enough people with money to buy, even at higher interest rates.

If anything, it may stir up home purchases of people who are rushing to buy before the rates go up even more.

[narby]

I watched the housing market in Houston

That was in the early 80's.

[Baklava]

Well, yes and no.

Some parts of the country are overpriced to the point where people can barely afford to buy a house--those areas are ripe for collapse.

But most of the country isn't like that. In my area (rural western PA), you can still get a very nice house for $50,000 and $250,000 gets you a small mansion.

Basically, I think that if you're in a high-priced area, you're likely to experience a collapse of housing prices but that most of the country will be just fine.