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12 June 2007

World housing crash feared by Investment Bank ABN Amro

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by Kay Mitchell

World housing crash feared by Investment Bank ABN Amro

Investment bank ABN Amro raises alarm bells about a world housing crash. Ever increasing borrowing costs could generate a housing slump on a worldwide scale.

Although not alone, Britain is one of the most uncovered markets due to extensive speculation in bond yields and increases in interest rates, this makes many households vulnerable as they have taken on large mortgages.

It is anticipated that the decline in the supply of new homes could lead to an unavoidable rise in UK property prices in the next few decades.

Rising interest rates could result in greater economic instability. This could leave housing markets vulnerable to a correction on a global scale. In the meantime, yields on government bonds – a key measure for the cost of borrowing – have increased recently, causing tremors through financial markets.

Concerns for the US housing market have also been in the press, the degree of over-valuation is more severe in Britain, Australia, Spain and Ireland.

A study by ABN Amro in April established that UK domestic property is 50% overestimated, while US houses are 25% too expensive.

Official inflation numbers are due out today. Analysts predict consumer price growth to lessen to 2.5%.


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