House prices have been falling and yet in a recent article in the Wall Street Journal (WSJ) it was stated that Britain has house prices that are still over valued by one third.  Journalist Alen Mattich remarked that UK house prices are 4.4 times the average earnings, which at the housing peak before the economic crisis were 5.8 times average earnings.  The US before the crash had house prices that were 4.8 times average earnings.

The US is still having major housing problems and in recent days there have been warnings of further problems with more home owners facing repossession and a possible double dip recession.  Mr. Mattich has stated that house prices in the US and the UK should be 3.4 times earnings and that the housing bubble in the UK has a bigger crash ahead of it than the US.  Neither country’s housing market is showing signs of recovery.  The US is seeing prices that have declined by an average one third of their 2006 peak.  This is a larger fall than seen during the Depression and in some areas the drop in prices is 50 per sent or more.  Almost 30 per cent of homeowners are estimated to be in negative equity.

Mr. Mattich says in his article that the Bank of England has kept the housing market from recovery by its long standing low interest rate.  While the prices stabilized after the crisis, the recovery is stuck and is becoming more vulnerable.  The Bank of England’s Monetary Policy Committee is due to meet this week and is expected to leave the rate unchanged, but it looks as if the wind seems to be changing and it appears one may be nearing or at least should be nearing.

Mr. Mattich said in his article: “The UK property bubble was more akin to that seen in Japan in the late 1980s. This is a comparison to chill British homeowners' blood, because Japanese property prices have slid for the best part of 20 years

“The number of mortgage approvals by banks is running at a mere 40% of where they averaged during the five years leading to the market's peak. The current rate of approvals is only two-thirds of what economists say is necessary to maintain stable prices.
 
"The big risk is that UK real estate suffers a dramatic collapse. The second big risk is that it takes decades to return to normality, much as has happened in Japan."

The original article by Alen Mattich appeared on http://online.wsj.com, June 3, 2011 and was titled “U.K. Housing Sits on Aspic, Not Firmer Foundations”.