Thursday June 26, 10:59 AM
BoE's King sees significant drop in housing market activity
LONDON (Thomson Financial) - Bank of England governor Mervyn King said UK housing market activity is likely to slow markedly and it is very unclear how long it will be until a recovery sets is.
Appearing before the Treasury Select
Committee, King said house prices had reached a level that was difficult to rationalise and it is now very uncertain how far they are likely to fall, meaning people will stay away from the market.
'We are likely to see a period of extremely weak activity,' he told the cross-party group of MPs.
He said that the economy was seeing a major adjustment in not just house prices but in the banking system as a whole.
'The time over which these adjustments will take place is almost impossible to judge,' he noted.
External MPC member Kate Barker said she doesn't believe overall that the housing market slowdown is yet as bad as that seen in the 1990s, pointing out that the economy was already in recession back then. However she did note that the drop in housing construction this year was 'far more severe' than in the previous slowdown.
She also said that the rise in mortgage rates means the fall in prices isn't improving affordability in the market, though it is helping to dampen the speculation in the market which had led to prices climbing so high.
Fellow external MPC (A050540.KQ - news) member Tim Besley added that the deteriorating housing market had put a stop to the buy-to-let boom, and it was unlikely to begin again anytime soon.
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