Will Europe crisis cut house prices 10%
So what is the company worried about?
Risk from EuropePete Redfern, head of the housebuilding firm, was warning about what he called a 'worst case scenario'. He pointed out that financial problems are rumbling across the continent. If global leaders don't do enough to rescue the desperate state of European finances, then countries will default on a major scale. If this happens, there is a strong likelihood that the banking system will come under even more pressure than it did during the financial crisis of 2007.
Banking crisisIf even a handful banks lose vast sums of cash through the default of major countries, this will have a knock-on impact on banks across the continent. British banks will see any liquidity dry up immediately, and will slam the brakes on any lending. The mortgage market will become an even more desolate place, and no-one will be borrowing or buying any more.
Add to this the fact that the country will still be struggling to recover, and may even be in the depths of a double-dip recession, and you end up with no demand for houses, and a flood of properties coming up for sale. The end result is always going to mean large falls in the value of property.
Is this likely?Redfern wasn't warning that this was a highly probable scenario. However, he is worried enough about it to have positioned the company so that it would be able to survive if this happened. He said: "Even if the chances are 1%, we've got to protect the business from that 1% chance."
On the face of it, and given that he was announcing results that constituted a marginal improvement from this time last year, this sounds like reasonable news. It seems as if there's only an outside risk of catastrophic falls in the market.
The concernThe problem is that the market is so vulnerable to changes in sentiment. If we all start planning for emergencies and working on the basis that house prices could drop as much as 10%, then buyers will negotiate harder or turn their back on the market for a while and sellers will be forced to drop the price. If we think the market will fall 10% and we act as if it is falling, then we will bring about the falls all by ourselves.
But what do you think? Are we set for a crash? Let us know in the comments.