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Is The UK Housing Market a ‘Bubble on a Bubble’?

By Dean Signori | August 16, 2018

The date of writing is August and following two consecutive months of seeing house prices inflate. Experts that closely follow the UK housing market are actively forecasting upcoming years. The most recent house price index from Halifax was released and it shows a 1.4 percent increase in June followed by a sharp 3.3% increase in the average house price in July.

If we take a further look back we can see that on a quarter by quarter basis, house prices rose by roughly 1.3 percent. In comparison to July, last decade housing prices are up a staggering 50 percent. Experts have issued strong warnings that the UK housing market is currently a ‘Bubble on a Bubble’.

Albert Edwards, co-head of global strategy at SocGen and graduate of Bristol University has strongly warned that the housing market bubble has a very strong potential to burst by the next financial crises after being the government has inflated it following the Bank of England policies.

His premonition came as the International Monetary Fund estimated that prices in a few of the world’s biggest economies, including the UK, United States and Germany could be overvalued by an average of 12 percent.

Average house prices in Britain

The average house prices in Britain for July were estimated to be around £230,280. If Mr Edwards is correct and housing prices are in-fact overvalued then the average UK home could potentially be expected to lose £30,000 in its valuation.

Delving further into why, Mr Edwards has stated the blame can be pointed to the help to buy schemes. A very loose monetary policy on Threadneedle Street saying these two reasons have caused inflation beyond the reach of many home buyers. The literal effect is lending home buyers more money that is in-fact, backed by the taxpayer. - this pushes house prices up even more.

Are we due for a correction

Whilst housing specialist Albert Edwards strongly believes the housing market is due for a huge correction, not everyone is of the same opinion the managing director of Halifax - Russell Galley disagrees. Commenting on the recent report of figures, Russell goes on to say “While the quarterly and annual rates of house price growth have improved, housing activity remains soft.

“Despite the recent modest improvement in mortgage approvals, the latest survey data for new buyer enquiries and agreed sales suggest that approvals will remain broadly flat until the end of the year.”

Russell goes on to say that the number of people in employment has risen by approximately 137 thousand in the three month to May. This in turn, eases pressure on households as the growth in earnings continues to rise at a faster rate than the average consumer prices.

Is Albert Edwards correct in his predictions or like Mr Galley states, is the UK housing market actually looking in a positive state than previously thought?

It’s worth noting that if you’re looking for a definitive answer you’re in the wrong place, it’s too early to tell as of yet. This doesn’t however, prevent us from building up a strong opinion and helping one prepare.

What do the lenders think

Let’s take a look at what Brian Murphy of the mortgage advice Bureau would argue, from a lending perspective.

Like Mr Galley, Brian Murphy isn’t exactly of the opinion that we are on a massive bubble of a bubble that could potentially burst and cause dramatic effects.

For those homeowners who are planning on staying put, the market growth could typically represent that homeowners do in fact have more capital in their assets. This would generally mean that LTV (loan to value) products are now available, which provides the potential for borrowers to get their hands on some of the most competitively priced products.

Brian continues to discuss the effects of the growth of the housing market. As houses continue to grow, an interest rate increase doesn’t directly mean doom and gloom, it actually is a positive sign that the economy, especially in the UK, is in a robust situation. Especially as the housing market is steadily rising and not increasing at a phenomenal rate.

A controlled interest rate increase is what we would prefer to see, rather than the events of the early 1980’s when average interest rates were at an extortionate 18 percent, in which the Federal Reserve waging a war on inflation was imminent.

What about the future

What does the continuation of the year hold in store for us? It’s always worth noting that August in-fact is the month that estate agents are the second busiest and literally all of them have a barrage of new properties to list that will entice the buyers. This is to anticipate the September rush where advertises list the houses as close to selling price as possible to get it off the market and all T’s crossed and I’s dotted in time for Christmas.

As always when looking at house prices, investments, or market values a small yet sustainable growth is much more preferred than unsustainable violate growth.

"Dean Signori leads the team at Homes Direct 365, a luxury furniture company based in the UK. With over 10,000 products growing daily ranging from antique French style, mirrored & shabby chic furniture. Advising property owners and real estate brokers on interior design and home staging."
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