Recent data on the health of the UK housing market appears to confirm that the improving trend has taken root.
Not only is the average home price rising, but importantly the trend is being seen nationwide rather than being focused on the South East, as had previously been the case.
According to the Halifax, house prices rose by the most in almost three years in July. A recent RICs survey also points to a reasonable outlook for the rest of the year, with surveyors increasingly optimistic about prices as well as buyer numbers.
The change in fortune can be attributed mainly to lower mortgage rates, as well as government intervention and an arguably tight supply of housing.
As with any market, confidence has also played an important role; as momentum has gradually built, would-be buyers and sellers become more confident which has led them to enter the market.
In a country where property tends to be the most significant of a household’s assets, this has important knock-on effects for the wider economy.
The implicit rise in wealth means that home owners feel better off, and as such, are likely to have a greater propensity to spend.
In an economy which is still very consumer orientated, this brings a boost to growth. For those who have been able to refinance mortgages, they will also have higher disposable income.
Government intervention in the form of ‘Help to Buy’ and ‘Funding for Lending’ are a mixed blessing, and it is debatable whether the former was really necessary.
Certainly in the short term they have helped, but in the longer term, government intervention in any market is to be avoided given that political motivations tend to prevail over fundamental ones.
The likelihood of a 2015 general election means that this may well be the case for these policies. The government will no doubt be keen to fight the election with a strong economic back drop and a robust property market, and as such there is the concern that these policies stay in place for longer than is required.
At the annual Jackson Hole Economic Policy Conference recently, the Bank of England deputy governor Charlie Bean appeared relaxed when questioned about the possibility of a new housing bubble, stating that at this stage there were no signs of this.
The dilemma of course is that with the central bank still aiming to keep interest rates low the chances of a bubble increase.
At this point, given the extremely low mortgage rates, house affordability is certainly not stretched and as such, talk of a bubble would seem misplaced.
Clearly rising house prices are both desirable and necessary for the economy.
The key will be that politicians and central bankers monitor developments extremely closely, as the last thing that the country needs is a return to the debt fuelled speculation that helped to cause the last crisis.
