U.K. Housing Market - Largest Home Price Decline in 17 Years

As reported by Bloomberg - "U.K. House Prices Decline Most Since 1991, Nationwide Says":

U.K. house prices dropped by the most in at least 17 years in October as banks tightened their grip on credit and the prospect of a recession deterred potential buyers, Nationwide Building Society said.

The average cost of a home fell 14.6 percent from a year earlier to 158,872 pounds ($261,000), the largest decline since the survey started in 1991, the Swindon, England-based mortgage lender said in an e-mailed statement today. Prices slid 1.4 percent from September.

One in ten mortgage holders may soon owe more than their homes are worth, Bank of England forecasts show, stretching homeowners as banks curtail lending. With the economy contracting for the first time since the the start of the 1990s and unemployment rising, economists say house prices may have further to fall.

The "R"-word: significant rate cuts to follow from the Bank of England?

Bank of England policy maker David Blanchflower said yesterday that Britain faces a "deep and long-lasting" recession unless rates are cut "significantly" soon. While the central bank on Oct. 8 slashed its benchmark rate by 50 basis points to 4.5 percent, Capital Economics Ltd. yesterday forecast it will fall as low as 1 percent.

U.K. policy makers are trying to ease strains in credit markets along with colleagues at the Federal Reserve and other central banks. Consumer borrowing rose at the slowest pace since April 1993 in September and mortgage approvals stayed close to the lowest in at least nine years, Bank of England figures show.

A further drop in U.K. housing prices?

U.K. house prices are nevertheless likely to fall more and the Bank of England estimates that a 15 percent drop in values would push 10 percent of mortgage-holders into so-called negative equity. Unemployment rose to the highest level in almost two years in September.

"As the economy weakens further, there is likely to be more movement on asking prices as sellers adjust to the prevailing conditions," said Earley.

Does any of this sound familiar? The global realities of our intertwined economic circumstances continue to become increasingly more evident. Will the U.K. housing market see the same battering in home prices that we've seen here in the states? They're certainly off to a good start, in a bad way.