A Housing Bubble?

Thursday 19th September

There appears to be some discussion at the moment as to whether there is a housing bubble.  Or not? And the answer is that it depends where you live.  In London prices are rocketing at almost 10% a year, whereas the further you go from the capital the smaller the increase until you get to those two regions, the north East and the North West, where prices have in fact fallen back.   Undoubtedly one of the contributing factors to the financial crash in 2008 was rapid increases in the price of housing, mostly in America, but here also.  It was also because these ‘sub-prime’ debts which had funded the purchase of highly inflated houses were being bundled up in ever more complex financial loan deals.  Then when things started to go wrong it all fell down like a house of cards.

The price of property is a finely tuned transaction, between on the one hand what the buyer can afford to borrow, and what the seller thinks is a good price.  The problem Is that thrown into the mix is people’s perception of how much the property they are putting themselves so much into debt to buy will be worth in a few years time.   For years now people have not only bought houses as places to live and bring up their kids in, but as an investment.  And they are, individually, right.  I have benefited incredibly from my first house purchase at £35k, which I eventually sold 25 years later (or the next house I bought anyway) for ten times that amount.

I am now at the point where the two houses I own have been bought with the sole purpose of being nice places to live.

The present ‘bubble’ is being fed by cheaper mortgages (or deposit ratio), and by the Chancellors promise of a tax-payer guarantee of up to 20% of the value of a deposit.  A dangerous precedent.  Why should one group of buyers get help to buy, when the rest of us struggled.  True, those people will probably get into even more debt by installing new kitchens etc: – so creating employment.  But hang on a minute, wasn’t all that debt the main cause of the crash in the first place?  Or are we in danger of repeating the same stupid policies yet again?   We will see.