UK: Deloitte Monday Briefing: Housing Markets Readjust

Last Updated: 20 August 2012
Article by Ian Stewart

Most Read Contributor in UK, August 2017

The Monday Briefing, written by Ian Stewart, Deloitte's Chief Economist in the UK, gives a personal view on topical financial and economic issues. Please feel free to forward the Monday Briefing to your clients, colleagues and friends who can, in turn, subscribe to it at:

  • Last decade's global housing boom turned to bust in 2007.
  • House prices have fallen in most western economies and have collapsed in the US and Ireland. Indeed, US housing is now 30% cheaper than in 2007 while Irish house prices have almost halved.
  • Most other countries have not seen such a sharp decline in property prices. According to the Economist, housing is still significantly overvalued in several countries, especially in Australia, Singapore, France, Sweden, Spain and Netherlands.
  • In the UK, the Economist estimates housing to be 26% overvalued relative to rents, although prices have shrunk by a tenth since the crash. With low interest rates limiting foreclosures and supporting interest payments on mortgages, UK house prices have proved relatively resilient.
  • However, the pressure on house prices has intensified over the last twelve months. With a renewed recession in Europe and rising financial uncertainty, property prices in peripheral Europe have begun to slide. The slowdown in the West has also hit house prices in emerging Asia.
  • In more than half of the 21 countries tracked by the Economist, house prices have fallen over the last year. With housing still quite expensive in most of Europe and Oceania, the risk is that prices will drift lower.
  • Housing was one of the big bubbles of the boom era. Falls in house prices are a painful part of rebalancing national economies. In this process, the US has made significant progress.
  • Although US house prices continue to fall, the US housing market is beginning to show signs of life. The Economist's data suggest that US houses are 12% undervalued relative to rents making them attractive targets for homebuyers. US housing starts hit a 4-year high in June. It is perhaps in anticipation of this turnaround that shares in homebuilders have risen 55% this year.
  • German housing also looks cheap relative to long-term yardsticks. Germany's mix of low housing valuations, a buoyant economy and cheap financing is unique in the industrialised world. Although house prices have begun to edge up there, German housing remains the most undervalued in Europe relative to incomes and rents.
  • Low rates of owner occupation, low levels of housing market turnover and conservative lending policies on the part of banks have acted as a drag on German house prices. A cursory search on property sellers' websites reveals that a similar 2-bed flat situated 5 kms from the city centre costs three times as much in London as in Berlin!
  • Of course, prices and affordability vary wildly by location. According to an annual housing affordability survey run by Robert Breugmann, a professor at the University of Illinois, London is the seventh least affordable housing market in the world with the average house priced 6.7 times the median income of Londoners. At the other end of the scale is America's auto-hub Detroit with houses priced 1.4 times median incomes.
  • In large cosmopolitan cities such as London, which see significant interest from foreign buyers, exchange rate fluctuations also play a key role in determining property prices.
  • A depreciating currency makes a nation's assets cheaper for foreign buyers. Over the last few years, the depreciation of the sterling has made British housing cheaper for most foreigners. For a Chinese buyer, who has seen the yuan appreciate against the dollar and the pound, property in London is now 35% cheaper than in 2007. The rising yuan has, on the other hand, inflated property prices in Beijing and Shanghai for people living outside China.
  • Five years on from the start of the financial crisis, housing in much of the industrialised world still looks pricey.


UK's FTSE 100 ended the week flat.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • UK consumer price inflation rose unexpectedly to an annual rate of 2.6% in July from 2.4% in June, driven by higher air fares and housing costs – inflation
  • The UK government announced that train fares will rise by an average of 6.2% from 1st January 2013 – rail travel inflation
  • The number of unemployed people in the UK fell by 46,000 in the three months to the end of June, falling to its lowest level for nearly a year – unemployment
  • US annual inflation fell to a 20-month low of 1.4% in July, driven by a drop in energy prices – US inflation
  • US industrial production grew by 0.6% in July, up from 0.1% in both June and May – US growth
  • The VIX volatility index, a popular measure of financial 'fear' in US equity markets, recorded its lowest level since 2007 – US confidence
  • A Bank of America (BoA) Merrill Lynch survey of international fund managers recorded the largest leap in confidence about global economic prospects since 2009 in August – confidence
  • Olli Rehn, the vice-president of the European Commission, warned that the eurozone is at a "decisive juncture" and revealed plans for "Economic and Monetary Union 2.0" – eurozone crisis
  • Otmar Issing, former chief economist at the European Central Bank (ECB), claimed the eurozone "should have started with a smaller number [of countries and] with stricter rules" in an interview with CNBC – eurozone
  • Spanish banks borrowed a record €402bn from the ECB in July, a rise of 10% from June, according to data from the Bank of Spain – banking stress
  • The eurozone banking sector is now smaller than that of Australia in terms of market capitalisation, according to data from BoA Merrill Lynch – banking stress
  • The Greek economy declined at an annual rate of 6.2% in Q2 2012 – Greece
  • Greek prime minister Antonis Samaras is to seek a two-year extension of its latest austerity program from eurozone leaders, according to the Financial Times – eurozone crisis
  • Italy's public debt rose to a record €1.97bn at the end of June, due largely to a large rise in Italy's share of bailouts for other eurozone countries – Italy
  • Finland's foreign minister, Erkki Tuomioja, said "it is only a matter of time" before the "currency straitjacket" eurozone breaks up – eurozone crisis politics
  • The mayor of the Spanish town Alburquerque, Angel Vadillo, is now 2 months into a hunger strike over national cuts to renewable energy subsidies – eurozone crisis politics
  • The World Tourism Organization estimates that 78m Chinese are expected to travel abroad in 2012, making China the world's biggest exporter of tourists for the first time – China
  • Publisher Pearson Group, which owns Penguin Books and the Financial Times, is to enter the education sector by launching Pearson College – education market
  • The Australian Securities & Investments Commission introduced measures requiring traders to have controls on their systems and test them annually to prevent market disruption from automated share trading – "algo" trading
  • Japan's economy grew at a slower-than-expected annualised rate of 1.4% in Q2 2012 due to a drop in consumer spending and the effects of the eurozone crisis – Japan
  • Chinese firm Lenovo, the world's second-largest PC maker, reported a year-for-year 30% rise in profits in the quarter to June, driven by strong sales growth to emerging economies – emerging markets
  • Shares in Manchester United football club began trading on the New York Stock Exchange, closing the opening day at the offer price of $14 per share – Manchester United
  • A survey for online-dating website eHarmony found that 25% of women say that stress over the state of the economy has made them more inclined to seek a long-term relationship, with visits to the dating website highest at times of market turmoil – market crush

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.