BEWARE THE BUBBLE

Clive Hedges - Partner at Arnolds Keys

Clive Hedges – Partner at Arnolds Keys

Lots of good news on the property market front this week – if you are an existing homeowner, that is.  But we should all beware that a media frenzy about house prices does not turn into another greed-driven bubble.

Two studies this week confirmed that the housing market is returning to good shape.  First, the Office for National Statistics said that house price inflation hit 3.1 per cent in June.  To put it into context, this means that average house prices are now rising at exactly the same rate as overall inflation, so at least homeowners are no longer losing money in real terms each month.

At the same time, the Royal Institution of Chartered Surveyors published its own survey, which showed that prices are now rising at their fastest rate since November 2006.

Of course, both of these pieces of research are for the country as a whole, and are therefore skewed by the continuing boom in property prices in London.  So what is the situation here in Norfolk?

The answer is that things are definitely moving again.  We are seeing levels of activity which we haven’t experienced since before the crash in 2008, driven by continued low interest rates, a return in economic confidence, and the success of the Government’s Help to Buy scheme.

Does this mean that we are about to see a huge jump in prices in the county?  Are vendors justified in adding £10k or £20k to their estate agent’s valuation, driven by big headlines in the Daily Mail?  Absolutely not, and despite the superficial attraction of such a situation, we should hope it doesn’t happen any time soon.

First of all, the last few years have seen potential vendors reluctant to enter a market which has been difficult, to say the least.  As things have started moving, these sellers have come forward, providing an increased supply of homes to meet the increased demand from buyers.  In short, at the moment the market is nicely balanced, with a greater level of activity and sales, rather than a price explosion.

Of course, if demand does continue to grow, the pressure on prices will edge upwards eventually.  As long as that is carefully managed (which might, for example, mean government restricting Help to Buy, or even edging up interest rates), then that is to be welcomed.

What we don’t want to see is a return to the out-of-control boom in prices we saw in the early noughties – because such a boom will inevitably result in another bust, and surely we have learnt by now just how painful that can be, not just for property, but for the wider economy.

So let’s welcome the good news, but let’s keep it in perspective.  If we remember that a house is first and foremost a home rather than a financial instrument, we shouldn’t go far wrong.

Clive Hedges FNAEA is Partner at Arnolds Keys.  Arnolds Keys website is at www.arnoldskeys.com.

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