House prices may see another run away rise over the next five years, meaning fears of a second price bubble may become a reality. A Reuters poll of economists has put the chance of out of control growth at 50-50 or higher - a bitter pill to swallow for a market that has thus far been welcoming improving data with open arms following three years of struggling economic fundamentals.
It is undeniable that Britain's housing market is picking up, with prices rising, lending increasing and home building resuming. The Help to Buy scheme has helped to accelerate this and there are clear signs confidence is encouraging across the board. Yet the Reuters poll highlighted that concerns are increasing the UK is falling back into the same mentality seen before the recession, which led to a tripling of average house prices over a ten-year period.
Of the 29 economists surveyed by Reuters, only nine think the risk of a price bubble is small. The remaining participants were split, with seven considering risk to be even, 11 thinking a bubble is likely and two as very likely. However, Danny Gabay, economist at Fathom Financial Consulting, believes even speaking about prices getting out of control again should be avoided. He told the news provider: "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."
Focusing on a sustainable recovery is certainly important, especially in areas prone to over-inflation, like London. Already prices in the city are going sky high and Cluttons believes the Help to Buy scheme will cause values to rise by 6.9 per cent by the end of the year, annualised at a rate of 3.2 per cent over the next five years. This is because the policy increases lending without an accompanying rise in stock, skewing demand and supply ratios.
- Monday 19 August 2013