It’s a story we’ve seen time and again here in Phoenix- small investors decided to purchase homes at the top of the market, the market cooled, and now the investors can’t sell or rent out their property.

We knew Phoenix wasn’t alone in it’s misery- you can hear the same story in Las Vegas, Miami, and other cities across the nation.  The story is not a uniquely American one however.  How familiar does this story sound from across the pond in Manchester, England? [Hat tip to our Liverpool reader for the link!]

Like so many young professionals hoping to cash in on Britain’s property boom, Paula Collins, a 26-year-old recruitment consultant from London, thought her money would be safe.

 The buy-to-let market was booming and the deal from a Manchester developer seemed too good to pass on.

The two-bedroom flat in the Castlefield area was valued at £175,950, but the developer was offering a 15 per cent discount, taking the price down to £149,500 – and best of all, no downpayment was required.

He would pay the 15 per cent deposit. Paula simply needed to cover her legal costs and stamp duty. If it sounded too good to be true, it was.

After 18 months, in which Manchester, like many northern cities, has seen a massive oversupply of new city centre apartments, Paula’s flat is now worth just £140,000.

Her mortgage costs her £900 a month, but she receives only £600 a month in rent. That’s when she could find a tenant. Now the flat is lying empty, so Paula has to stump up £900 a month just to cover costs.

 

So why is the fate of investors in the U.K. a concern to us in the U.S?  Consider these comments from U.S. Treasury Secretary Hank Paulson on the U.S. market:

Mr Paulson said the housing downturn would "continue to adversely impact our economy, our capital markets, and many homeowners for some time yet." He added that the "ongoing housing correction is not ending as quickly as it might have appeared late last year".

Mr Paulson said he believed the US economy remained healthy and would continue to grow, but added that housing could still produce surprises.

"Despite strong fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."

While our housing market is still in the relatively earlier stages of its correction, the U.K. housing market is by comparison an even more recent newcomer to the world of housing doldrums.  Slowdowns in other markets such as the U.K. and New Zealand [which is also under a lot of downward pressure] not only will put additional strain on a global financial system still reeling from U.S. market problems, but the time lag will assure that the pressure on the market continues for sometime to come.

The credit crisis is global, and we are seeing the effects in markets around the globe.  The problem won’t be gone after auctioning off a few condos in Miami or Las Vegas, or having a fire sale on a few stucco McMansions in California and Arizona.  The market is going to have to stabilize in places like Manchester as well, before we can hope to see real improvements in the housing and lending industries.