There goes the “Mini-Boom”

Watching the decline of America’s greatest housing boom is such a compelling spectacle that it’s easy to forget that we are not alone.

It appears that almost every industrialized nation (except for Germany and Japan) has experienced a similar astronomical run-up in prices over roughly the same period as the US and are now experiencing a similar slowdown.

Evidently, the exceptionally low interest rate environment of the new millennium was not confined to our shores and fueled, among other things, a frenzy of speculative housing activity worldwide.

Likewise, now that central bankers are beginning to tightening rates in order to head off inflation, we are seeing a worldwide slumping trend.

In August of 2005, the Bank of England, concerned about a possible economic slowdown (including a weakening of home prices), actually cut thier benchmark rate 25 basis points for the first time in over a two year period.

The move appeared to be generally accepted given that the UK’s economy was noticeably weakening and the effect on housing (i.e. reinvigorating it as it was previously "white hot") was predicted to be minimal.

"… we do not believe that a modest reduction in interest rates over the coming months would cause the housing market to re-ignite, given that affordability ratios are still very stretched on several measures," said Howard Archer, chief UK economist at Global Insight

Enter the “Mini-Boom”.

Unfortunately, for many in the UK though, the rate cut did in fact signal home buyers to jump back in the pool creating what was termed a “mini-boom” that persisted through the first half of 2006.

Today, in a move that is sure to raise concerns about the stability of housing in the UK, the Bank of England unexpectedly raised their benchmark rate 25 basis points; back to the 4.75% it was at prior to the 2005 rate reduction.

Apparently only eight of thirty eight economists surveyed by Bloomberg predicted the increase.

So, it seems concerns over inflation are becoming a trend and with central bankers worldwide tightening up on the money supply, housing markets should continue to feel the pain.

Only time will tell but there may be much that we can learn about or own hyper inflated housing market by occasionally looking abroad.