At last, at last, the bigger names who comment on the housing market have woken up to the reality of the banking crisis and what it will mean for house prices in the UK.
We have Price Waterhouse, The RICS (Royal Institute of Chartered Surveyors), the Council of Mortgage Lenders and Capital Economics all now becoming very bearish on property. It's about time, we here since 2006 have been sounding warnings.
Now we have worse to come. As house values fall, and they will fall as there is no more "irrational" lending to prop them up, what will the banks do who have used property as collateral for business loans? They will have to call them in or re-finance at terms less attractive. And that means more deflation.
We are entering a period when our standards of living will have to fall. After all our standards of living went up due to the availability of "easy" credit. That credit has gone. BUT, everybody still expects growth, they expect expansion. Well the opposite is going to happen. More banks will fail, many many more bankruptcies will occur.
In the USA delinquent loans over the $1m mark stand at 14% of loans. So at what percentage delinquency do banks fail their solvency tests? And this will come to the UK as well. The Buy to Let Boom will see the buy to let bust. But will it bring down any banks? We will await to see. As there is no chance of a bail out, it would mean a big bank failing. Confidence would then collapse in our entire property based system.
So be warned. Do not jump into property now thinking we are at the bottom. We are still on the way down.
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