Forget about bubbles… we’re getting sustainable growth

John Elliott, managing director of Millwood Designer Homes, says the property market has been showing strong signs of a sustainable recovery for some time. Now it appears that he is not the only one with this view!

John Elliott, managing director of Millwood Designer Homes, says the property market has been showing strong signs of a sustainable recovery for some time. Now it appears that he is not the only one with this view!

I have found the past year very frustrating. It seems that for every positive story in the media about the property market, there are five negative ones. Most of the time it is sensationalism rather than fact.
The latest negative story is that increased mortgage lending and spiralling house prices risk causing a housing bubble, similar to what we saw pre-recession. However, Bank of England governor Mark Carney has been quick to hit back, believing these concerns are unwarranted and vowing to act at the first sign of trouble.
Let’s not forget that times have moved on. The Bank of England doesn’t just rely on interest rates to contain risk. There are numerous tools they can use to secure the property and financial sectors, doing everything they can to
monitor the risk of unstable credit and house-price growth, acting immediately if needed.
In a recent interview with The Sunday Times, Paul Fisher, the bank’s executive director for markets, was also quick to challenge the criticism, insisting its new policy of forward guidance on interest rates was working and dismissing fears as hype.
The reality is that no one wants another recession, but sensationalism can be worse than the problem itself. People are forever talking about what might happen, rather than focusing on the facts.
The UK economy is said to be at a rate at which recovery is self-sustaining, with households’ debt-servicing costs relative to income below their 20-year average, similar to 2003 levels.
Economic activity is also improving. A recent report from the National Institute of Economic and Social Research revealed that output grew by 0.9 per cent in the three months ending in August.
Yet people are still saying we are heading for this big fall. The reality is that conditions indicate sustainable growth over the medium term, most importantly at a pace that is likely to be measured rather than rapid. I read an interesting article in The Sunday Times Bricks & Mortar section, which reported that the tempo of the market in most places is quickening, not racing away, particularly when you look at current house prices.
So what is fuelling the fears? Increases in transactions and mortgage lending apparently, even though these rises are from a low base. The Government’s Help to Buy equity loan scheme, which underwrites 95 per cent mortgages and allows people to buy newly-built homes with a deposit of just 5 per cent, is one factor being blamed.
However, Charles Goodhart, a former member of the monetary policy committee and consultant to Morgan Stanley, is in support of the scheme, predicting it could lift the construction of new homes by 30-40 per cent by 2015, compared with last year.
It is important to remember we are still well below the figures we saw pre-recession. Residential sales in July were 18.5 per cent higher at 88,690 than July last year. When you compare that with July 2007’s figure of 138,630, things are hardly spiralling out of control.
The Royal Institution of Chartered Surveyors recently said it believed the housing market was on the road to recovery, reporting the highest number of potential buyers for four years, with house prices rising across the country for the fourth consecutive month.
The positive feelings are further supported by the Council of Mortgage Lenders, which reported that first-time homebuyers are rushing back to the market as confidence grows and mortgages become increasingly available.
In the second quarter, 68,200 first-timers purchased property, the highest quarterly number since the pre-crisis peak in 2007.
So does this all sound like the bubble is going to burst? We are going to have waves of recovery – some months things might speed up, while in others they will slow. You have to take a step back and look at the overall picture.
What we want is steady, sustainable growth, and that is what we are getting. I don’t think the bubble is going anywhere, so perhaps it is time to stop pointing a finger at it.

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