House Price Bubble a Myth?

Economists at the Halifax have dismissed fears that the UK is heading for another house price bubble. The lender’s November house price index shows that house price growth is continuing – but at a slower rate.

Halifax said prices today are 6.9% higher than a year ago. Over the three months to the end of October prices were 1.6% higher than in the previous three-month period. But this increase was lower than the previous two measures of quarterly growth, both of which were above 2%.

Halifax housing economist Martin Ellis said: “Demand has increased this year, putting upward pressure on house prices and increasing levels of activity.

“Low interest rates, and higher consumer confidence supported by the increasing evidence that a sustainable economic recovery may now be underway, are helping to increase housing demand.

“Both house prices and sales remain below the levels reached at the height of the last housing market cycle in 2006/2007.

“Sentiment towards selling has also improved in recent months in response to the pick-up in the market, which should help to increase the availability of properties on the market over the coming months.”

Ben Thompson, managing director of Legal & General Mortgage Club, said the Halifax figures suggest a two-speed housing market at the moment.

“In places like London and the South-East we are seeing prices gather pace quickly which is raising concerns in some quarters about a potential bubble. However, in many other parts of the country there are localised market issues that persist. It is for that reason that calls to pull stimulus such as the extension of Help to Buy and worries about a credit bubble are premature. People tend to forget that Help to Buy is a temporary measure. If the Government needs to change its terms or withdraw it altogether to avoid the market overheating it can do so.

“The main long term problem is the chronic lack of suitable housing. This constrained supply is the main issue to solve if we are to ensure a stable, balanced and sustainable UK housing market in the future. Ideally house prices would increase broadly in line with inflation and wages but until we solve the systemic problems inherent in the market these pressures look set to remain and are being closely monitored and controlled.”