Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20

Market Oracle FREE Newsletter


UK Housing Bust to Hit British Pound

Housing-Market / UK Housing Jul 05, 2008 - 12:21 PM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleJack Crooks writes: I've pointed out many times here in my Money and Markets column that interest rates and economic growth are always the two primary fundamental drivers of currency prices. Therefore, it's no stretch to conclude that housing has been the Achilles' heel for the U.S. dollar.

But what if there's another major currency country that has a much worse outlook for its housing market? Would we then expect bad housing news to play a similar role in pushing its respective currency lower? I think the short answer is: Yes!

It's fitting on this Independence Day holiday weekend that we examine the incredible exposure to housing prices in our motherland — the UK — compared to the U.S. And once you take a look at the ugly factoids in context, I think you will understand why ...

The UK Economy and Pound Are In Trouble

I recently read this poignant comment by Jim Grant, long-term editor and market sage for Grant's Interest Rate Observer :

"The full catalog of the consumer's troubles would fill out a Sunday-morning sermon in a Puritanical meeting house. Improvidence compounded by idolatry — yea, the worship not of graven images but of houses — is the sum and substance of the situation."

Clearly, the pricking of the housing bubble was the catalyst for the downward spiral in the U.S. economy. It has paved the way for lower interest rates and varying degrees of desperate measures from our Money Gods — the Federal Reserve.

But if you think the U.S. has economic issues, get a load of the extreme exposure to housing the UK's economy is grappling with ...

  • UK consumers have about $278 billion in residential mortgage backed securities (RMBS). This is the toxic derivative-related stuff; RMBS are the dirtiest four letters in "The City" right now. UK exposure to RMBS is the largest exposure in Europe by far.
  • Britain's total RMBS exposure is dwarfed by the $4.39 trillion racked up in the U.S. But as a percentage of total GDP, the UK RMBS exposure is a whopping 7%, whereas the U.S. RMBS exposure to GDP is a miniscule 0.2%.
  • Residential mortgage debt outstanding per capita in the UK is 136%; it is 103% in the U.S.
  • Residential mortgage debt to GDP in the UK is 51%, compared to 44.5% in the U.S.
  • Debt to disposable income for the UK consumer is 164%, compared to about 138% for the U.S. consumer.

You may not be too impressed with these numbers. But keep in mind, since 1996 UK housing prices have tripled, whereas U.S. housing prices only doubled. And if you believe as I do in reversion to the mean, i.e. that prices sooner or later come back to a natural historical path; you can see why the UK is much more exposed to a downturn in housing than the U.S.

As the chart below overwhelmingly reflects, the UK housing price downturn is now well under way and beginning to accelerate.

UK House Prices

June marked the eighth consecutive month in a row that housing prices have fallen. And year-over-year prices are down 6.3%. That's miniscule considering how far prices have risen in this cycle.

"The latest data on the housing market are undeniably alarming," said Howard Archer, chief European economist at Global Insight in London, who expects prices to fall 12 percent this year and next.

"The marked deterioration in sentiment over the housing market also heightens the risk that house prices will fall sharply over the next couple of years," according to the International Herald Tribune.

But what if prominent economists are wrong?

Given that UK consumers are straining under the weight of debt, which is leading to a soaring number of personal bankruptcies — a 30% increase year-over-year through March 2008 — I think a 12 percent price fall forecast for UK housing in 2009 is grossly underestimated.

And on the institutional side of the fence, things are just as bad or worse. UK housing stocks trading on the London Exchange have been decimated, and some are teetering on the edge of bankruptcy. One of the biggest market players, Taylor Wimpey, saw its stock plunge 55% on Wednesday after the company revealed it will need a cash infusion to stay afloat.

Late last year, the UK government stepped in to save one of the country's biggest mortgage lenders — Northern Rock. I expect we will see more rescues like this in 2009. But the exposure is tremendous, and there will likely be major bankruptcies that will only add to the deteriorating sentiment toward the sector.

British Pound - US Dollar WeeklyWhile housing will no doubt continue to be the Achilles' heel for both currencies, I believe that the UK economy is much more exposed to falling housing prices than the U.S. economy.

Bottom Line: I continue to a long-term bear on the British pound and believe any rallies in the currency represent an opportunity to enter short at a better price. Selling the pound against the dollar with a 10-12 month time frame may present one of the best opportunities in the currency markets today.

Best wishes,


This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules