The world body predicted a downturn in the US market which it said would be followed by similar slips in the UK and Spanish market.
It admitted its concern that prices have been overstretched and problems in the US housing market could have a big impact on countries that it sees as being in precarious situations.
Thierry Breton, French Minister of Economy, Finance, and Industry told the
International Monetary and Financial Committee (IMFC): “In the US, short-term indicators for the real estate market show a net deceleration in price increases and a decrease in the transactions. The global impact on growth will be felt through the slackening of residential investment, and the impact on consumption through the wealth effect and the slowing of mortgage refinancing opportunities.”
However, Peter Charles, group economist and head of market analytics at Bradford & Bingley, dismissed the fears. “The IMF has expressed concerns over the UK market for some time and it has yet to be proved right. The factors driving the US market are very different to Europe and the UK market is quite stable.”
Tony Jones, managing director at Pink Home Loans, agreed: “The IMF believes the main problem is in the US but it also has concerns about overstretched house prices in the UK, Spain and a few other countries. However, it has emphasised it as it looks at the rates of income multiples, rather than affordability and what people are paying every month.”
Much of this thinking is based on the different factors affecting the UK market, such as housing supply and the changing population demographic, which sees more people living on their own.
Charles added the ratios that the IMF used did not represent the way the UK market worked. “As people become richer, they spend a higher proportion of their wages on housing so you’d expect that ratio, which the IMF uses, to rise.”
