U.K. Recession Fears Grow

U.K. home prices took their sharpest tumble in May in the 17 years of recorded data, raising the risk that the world's fifth-biggest economy will go into a recession, some economists say. House prices fell 2.5% in May from the prior month, the largest decline since the Nationwide monthly index began in Jan. 1991. Prices fell 4.4% from a year earlier, the biggest drop on this basis since Dec. 1992, the U.K.'s last recession. Prices have fallen for 7 months in a row, the longest stretch since 26 years ago, when a price crash saw thousands of homeowners slip into negative equity, where their houses were worth less than debt they owed on them. Nationwide is a large UK mortgage lender that compiles data used by the central bank & other policy makers. That said, the consensus view among economists and the Bank of England is that Britain will miss a recession, even as increasingly negative data increase probability of one. Among their reasoning: U.K. unemployment, while registering its biggest increase in 2 years in April, is still low at 5.2%. A number of factors mean British homeowners are in better shape than during the 1992 recession, said a Nationwide Chief Economist. Fewer homeowners bought at the top of the market, borrowers put down bigger down payments than their 1980s counterparts, and a greater proportion opted to repay capital rather than just interest on their mortgages, she said. House prices are particularly important in the UK, where ownership is high. About two-thirds of Britain's economy is based on consumer spending, and Britons' free-spending habits were buoyed by high house prices. But banks, hit by the credit crunch, have increased the costs of mortgages, withdrawing many products and tightening terms on existing ones. The number of mortgage approvals in April was nearly 40% lower than a year earlier. Even worse than lower home prices is the lack of homes being sold, say London-based real-estate agents Chesterton. Chesterton