The big talking point at the moment is whether the property market is a bubble. The latest fuel to the fire is the news that London house prices have risen 9.7% over the past year. This figure is far too general to be of much use to anyone as are most statistics on property. For example, there is a surplus of houses worth between £10 and £20m in Royal Borough of Kensington and Chelsea & Belgravia. Consequently prices have only increased c. 2% for this price bracket as a whole. Obviously there will be those that have gone up more while others have actually seen a fall in price or simply not been sold.
As stated in recent posts, there are good arguments for the market being able to sustain current prices and further (although more moderate) increases while there are many catalysts that could precipitate price falls. However, politicians and central bankers are the last people you want to listen to about the property market. For example, Ben Bernanke, the saviour of the global economy, stated in March 2007 that: “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
Meanwhile George Osbourne , Chancellor of the Exchequer, when questioned this week about a current bubble in the housing market said one did not exist because: “If you look at the actual data on housing at the moment, for example transactions are at two thirds of what they were, mortgage approvals are half of what they were and of course outside of London, house prices have barely grown”.
We would suggest that the number of transactions and mortgage approvals is not the first place to look for indication of a bubble. The number of transactions is irrelevant compared to prices in terms of rental yields or earnings (the latter may well be falling faster than house prices outside of London and the south-east). The earnings picture is obviously a less helpful barometer in London as one has to take into account international wealth/earnings as international buyers have flooded into the market since 2009. Of course, how likely this scenario is, is hard to quantify.
But whatever you do, do not look to politicians for guidance. Unfortunately they have a habit of looking at broad statistics. You must not fall into the same trap when looking for a property. Rather than simply following statistics fed to the press by estate agents, you must know exactly what is happening in the particular area and price range you happen to be targeting.
Let us know if you need any assistance in the search for your new home.
The London Property Finders