Reuters has an alternative take on the apparent house price crash in the UK. They’ve totted up the value of all the houses in the UK and then worked out how much their collective value is falling by each day.

I have to admit that £1bn does sound an impressive number and the very fact that the total market value is falling by a billion pounds a day is probably indicative of how massively overinflated this asset price bubble had been allowed to become.

In context, the market worth increased by £750bn over the last three years so at the current rate of fall, it would take two years to return to the same point ie: The fall is faster than the previous climb (and that’s if you don’t adjust for inflation).

Halifax home price data released today shows that home prices in the UK have fallen 7.76% since their peak in August last year. The average home ‘lost’ £15,500 in potential sale value over this period.

Levels of borrowing in what some describe as the biggest asset price bubble in UK history reached over 5x the average salary with people on lower incomes borrowing even more. Now the credit crunch causing banks to reign in their lending in no small way, preventing excessive borrowing. The knock-on effect is a collapse in the house price bubble as sellers are forced to reduce their asking price to meet the limitations of mortgage offerings.

Halifax data[MS Word Doc]

The Halifax has posted a report of 2.5% house price falls month on month, the sharpest drop since the early 90s. The year on year figure is still positive at 1.1%

Martin Ellis, chief economist for Halifax said:

Overall, we expect there to be a modest fall in UK house prices this year. Any declines, however, should
be viewed in the context of the significant price rises over recent years. The average UK price has risen
by £120,860 during the past decade from £70,696 to £191,556; an increase of 171%.

Predictably there were some calls for the Bank of England to reduce interest rates but obviously, it is not the BoE’s remit to look after asset prices, rather to target inflation. Furthermore, the Bank of England’s previous interest rate cuts have not been passed on to mortgage borrowers, the private banks have instead been increasing their rates to customers.

Any such downward move in interest rates in the face of massive inflation would destroy the pound’s value against the Euro just in time for British people’s summer holidays.

The Abbey National bank deleted it’s 100% mortgage product today, the last such 100% product available in the UK.

Here we have a little sketch found on Youtube from the South Bank show. Bird and Fortune do their usual interview style sketch, this time with the interviewee being an investment banker.

This actually goes a long way to explaining the realities of subprime lending in an easy to understand and rather amusing fashion for the layman.