The housing boom returned in May and it’s difficult to know whether we should grin, cry or just laugh.
The half government-owned Halifax says house prices went up a stonking 2.6 per cent in May.
This is a boomtime number.
There was a bounce in this index in January too (up 2 per cent, proved to be a dying cat though), and of course the context is that gain only just about reverses the fall in the previous month.
Nonetheless, City economists are beginning to get as giddy as a Manchester City fan playing fantasy football with Arab oil money. Other housing indices have been up two out of the past three months, mortgage approvals are up in four of the past five months, and measures of new buyer interest are at a decade high.
As George Buckley of Deutsche Bank: ”This latest Halifax reading is not an isolated case. There are clear signs emerging that the UK housing market has turned the corner. Combined with the CIPS surveys posting the biggest 6 month winning streak in the history of the series, the outlook for the UK economy is improving dramatically”.
Gee whizz! Emerge from your bunker, bin the wind-up radios and crack out the vino. Forget the Mad Max financial apocalypse, soon we’ll all be back to amassing giant property empires (apparently the odd politicians have to sell up), doing DIY and using our lofts as cash machines. Yes?
Well no actually.
I think this number and its supporting numbers are significant, and there are reasons to suspect some sort of rapid rebound is under way. But this rebound is, I would say, a product of government intervention. It is a politically-sponsored housing bump. It comes as the result of massive political pressure to improve credit availability, and huge taxpayer support to clean up the banks’ balance sheets.
I went into my own now state-owned bank last week for some savings advice, and they ended up offering me a mortgage! I do wonder if the staff of state-owned banks are on bonuses to flood the UK housing market with abundant credit.
So I am cautious. I can see the short term politics of getting house prices back up again. But I can see that calculation changing as it emerges just how much taxpayers’ money has been required to improve credit availability.
And on the day the independent Bank of England meets to vote on monetary policy, it’s worth reflecting that the decision was taken to ensure market credibility by removing the politics from interest rate setting.
Now though it does seem that the government has acquired a far more potent lever over credit availability in the economy.
Commentsoldest first
Are rising house prices actually good for the UK economy? Surely it is the runaway prices that have forced people to stretch themselves beyond their means to get onto the housing ladder, thus resulting in banks and building societies adopting more risky lending policies. Would it not be better for the economy overall for house prices to fall to affordable levels? People would then be able to save for deposits and get mortgages at no more than 3 times their income. It would also assist if we had a public housing building programme so that those who can’t afford to buy can at least get decent housing. It’s odd that housing associations seem only able to offer shared ownership for key workers but nothing else.
No more return to boom and bust please. We need stability…
Unfortunately, it is this emphasis on house price indices as an indicator of national economic health that encourages people to think about houses as an asset rather than a place to live. While we still think like that, it is inevitable that the government will do anything it can to keep the prices inflated – afterall, they are essentially protecting the baby-boomers’ savings and pension plan!
Without a significant change in our attitude to property, slavery to rising house prices is inevitable and the younger generation will be forced to accept more debt in order to secure their own home.
Does this cycle sound familiar…..?
So long as land is a scarce resource, and so long as the population increases, and as long as free-market capitalism exists, then house prices will go up over time. That’s just the system we live in. UK Financials
Housing in UK represents one of the most distorting features of its consumer driven economy. Exempt from most taxation and subsidised in so many ways, historically and now prospectively with sterling devaluing mortgage rates. Be long housing but short sterling..
Leave a comment
* Required field.