The price of a typical house is now 1% lower than this time last year
http://www.nationwide.co.uk/hpi/historical/Apr_2008.pdf
The US Real Estate market is accelerating to the downside.
Bernanke (1983) argued that the reduction in borrower net worth increased the cost of obtaining external finance, while bank failures and tightened credit standards hampered the efficient allocation of capital
Today, in the US
Banks have watched the value of the assets they hold, especially those that are mortgage related, decline. At the same time, their liabilities do not change. That means erosion in their capital, or assets minus liabilities. When bank capital falls below regulatory minimums relative to assets, financial institutions have to sell assets, which set in motion the kind of downward spiral the Fed was looking to prevent.
The UK…
Net lending to individuals in the U.K. came in at £8.2 billion in March, compared to £9.6 billion in February. We had expected a decline in net lending to £9.0 billion. Although the Bank of England cut its interest rate three times since November 2007, from 5.75% to 5% in April, lenders are unwilling to pass forward the base rate cuts. Declining house prices and stiff money markets are restraining mortgage demand as well.
The sixth largest economy the UK has joined the US, Japan, Germany, Ireland, and Spain in the global Real Estate bust.
Forward indicators point to a recession for Europe by the end of this year, with Asia to follow within 1 year. A confirmation in the Global Real Estate bust will come from Australia and Canada, which are slowing dramatically.
The forces of asset deflation are spreading around the world.
