Only a mug bets against rising house prices in Britain. This is a small island that has a rising population, tight planning controls and a tax system that favours property. Demand tends to run well ahead of supply, and that means bricks and mortar always seems a good investment.
Well, call me a mug if you like, but house prices are overpriced and have to fall. Activity is weak, with the number of new mortgage applications running at less than half their pre-recession levels. First-time buyers, according to a survey from Rightmove out today, account for only 20% of the market, about half the level needed to lubricate housing chains. A separate snapshot of the market from Hometrack says that sagging prices are more than the customary seasonal lull.
On the face of it, this seems strange. Friday's revised figures for UK growth in the second quarter showed output expanded by 1.2% – the strongest surge in nine years. Traditionally, there is a symbiotic relationship between growth and house prices; the two feed off each other. At the moment, however, this relationship has broken down and it's not hard to see why: the market has been rigged in favour of existing owner-occupiers at the expense of those trying to get on the housing ladder. Bank rate was cut from 5% to 0.5%. The Bank of England launched its quantitative easing programme, which has added £200bn to the money supply. Ministers put pressure on lenders to go easy on those in mortgage arrears.
All this was done with the best of intentions. Back in the early 1990s, Britain saw record repossessions when boom turned to bust. Given that the downturn of 2008-09 was far more severe, there were justifiable fears that a tidal wave of repossessions would tip Britain into a full-scale slump. The policy was a double success. First, repossessions were capped at about half the levels in the milder recession two decades earlier. Second, the boost to real incomes for those with variable-rate home loans meant that they could spend a bit more while at the same time paying down their debts.
But there was a downside to rigging the market in this way: it created what economists call a classic insider-outside problem. When the property bubble popped in the late 1980s, house prices fell for six years, making them affordable again for first-time buyers. This time, the scale of the policy response meant prices steadied much more quickly; they were edging up in the spring of 2009, even though economic output was still falling.
More: House prices have nowhere to go but down | Business | The Guardian
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Well, call me a mug if you like, but house prices are overpriced and have to fall. Activity is weak, with the number of new mortgage applications running at less than half their pre-recession levels. First-time buyers, according to a survey from Rightmove out today, account for only 20% of the market, about half the level needed to lubricate housing chains. A separate snapshot of the market from Hometrack says that sagging prices are more than the customary seasonal lull.
On the face of it, this seems strange. Friday's revised figures for UK growth in the second quarter showed output expanded by 1.2% – the strongest surge in nine years. Traditionally, there is a symbiotic relationship between growth and house prices; the two feed off each other. At the moment, however, this relationship has broken down and it's not hard to see why: the market has been rigged in favour of existing owner-occupiers at the expense of those trying to get on the housing ladder. Bank rate was cut from 5% to 0.5%. The Bank of England launched its quantitative easing programme, which has added £200bn to the money supply. Ministers put pressure on lenders to go easy on those in mortgage arrears.
All this was done with the best of intentions. Back in the early 1990s, Britain saw record repossessions when boom turned to bust. Given that the downturn of 2008-09 was far more severe, there were justifiable fears that a tidal wave of repossessions would tip Britain into a full-scale slump. The policy was a double success. First, repossessions were capped at about half the levels in the milder recession two decades earlier. Second, the boost to real incomes for those with variable-rate home loans meant that they could spend a bit more while at the same time paying down their debts.
But there was a downside to rigging the market in this way: it created what economists call a classic insider-outside problem. When the property bubble popped in the late 1980s, house prices fell for six years, making them affordable again for first-time buyers. This time, the scale of the policy response meant prices steadied much more quickly; they were edging up in the spring of 2009, even though economic output was still falling.
More: House prices have nowhere to go but down | Business | The Guardian
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