A recent Reuters poll that measured economists’ fears regarding a possible real estate price bubble in the United Kingdom (UK) show that most aren’t very concerned. And, it’s not because they don’t believe one is coming; they just have more faith in the growing recovery to counteract any negative effects. Government measures to boost both lending and spending are giving people confidence and a recent survey conducted by the Royal Institution of Chartered Surveyors that shows the fastest house price gains since 2006 lends credence to the economists’ position. For more on this continue reading the following article from Property Wire.
Economists believe that the UK could find itself with a property price bubble but they are not too concerned about it as the economic recovery is looking more sustainable, according to a new poll.
The majority of economists, working for major banks, and research institutions and consultancies who took part in a Reuters poll put the chances of prices running away at 50-50 or higher over the next five years.
They feel that a clear pick up in the housing market, accelerated by the government’s Help to Buy scheme introduced earlier this and other measures to boost lending, is a sign of rising confidence in the economy.
But with the last housing boom of 1997 to 2007 still fresh in the mind, there are concerns that the UK is falling back into the same mentality that led to a tripling of the average house price in 10 years.
Only nine out of 29 economists surveyed said the prospect of another house price bubble, whereby prices rise so fast they would be vulnerable to a sharp correction, is small. The other 20 were split between seven describing the risk as even, 11 as likely, and two as very likely.
Danny Gabay, economist at Fathom Financial Consulting, said media talk of a new housing bubble wasn’t very helpful, and that rising house prices are not intrinsically a bad thing.
‘We’re not concerned about a new housing bubble, we’re concerned about the fact we never worked off the last one before they began to re-inflate it. We’ve stopped any attempt at any of the repair work that is essential for this economy to be able to heal properly,’ he explained.
A July survey from the Royal Institution of Chartered Surveyors showed the fastest growth in house prices since 2006. Official data showed house prices in London, which typically lead the rest of the country, jumped 8.1% in June compared with the same month a year ago.
Despite declining sharply in 2008 and 2009 after Britain and other advanced economies plunged into severe recession, UK house prices have remained overvalued compared to economic fundamentals, according to every quarterly Reuters UK housing market poll since then.
Gabay argues that not only have the government and the Bank of England stopped the process of deleveraging, they’re now encouraging homebuyers to take on more debt.
Chancellor George Osborne said last month that the Help to Buy scheme, which provides government backed equity loans to first time buyers and people moving to new build houses worth up to £600,000 pounds, was a targeted response to a malfunctioning mortgage market.
The new Bank of England Governor Mark Carney, asked last week at a press conference about the prospect of another housing bubble, did not address whether or not that was a risk for the economy. He said the market should be put into context and pointed out that mortgage applications are still well below historic averages.
Rising house prices would support economic recovery as they make homeowners feel wealthier and more likely to spend.
The Reuters poll showed the UK economy is likely to improve further from here over the next 18 months at least. The vast majority of respondents, 30 of 35, said upbeat purchasing managers indexes, burgeoning consumer confidence and an improving retail outlook all pointed to the battered economy getting back on track.
Britain’s economy is expected to grow by between 0.4 and 0.5% per quarter from here through to the end of next year, with the consensus barely changed from last month’s poll, although the outlook is not without risks.
‘Though sustainable, the prospective recovery is likely to face headwinds from the euro zone, a weak UK credit system and the economy’s structural problems such as over reliance on finance, and lack of skills,’ said Stephen Lewis, chief economist of Monument Securities.
This article was republished with permission from Property Wire.