Housing Market: a bubble or slowdown?

[Brian Turner]

Personally, my perception of the UK housing market has been that it's an absolute bubble. I'd like to know why on earth the prices have been rocketing up so much - anyone can see things have become quite ridiculous. It all looks so familiar to the prior days of the internet bubble bursting - yet the market has allegedly been performing well and will merely slow down a little.

Anyone else think that we're facing a housing bubble, and that as soon as interest rates hit 6% we'll start seeing the homes start to flood into the market?

Anyway, here's an excerpt of a report from teh BBC with two different perspective on it:

UK could suffer 'housing bubble'

UK house prices could be set to fall 30%, City firm Durlacher has predicted.


The firm warned the growth of buy-to-let investment meant the UK housing market was looking like a bubble.

"Weak regulation... abuse and declining standards of underwriting by some lenders" was to blame for a huge rise in house prices since 2000, it said. But a separate review of housing markets in 14 European countries concluded that prices in the UK were slowing, but would not collapse.

more:
http://newsvote.bbc.co.uk/1/hi/business/3513765.stm

[Gabriel]

I am not convinced we'll see a bubble burst on the housing market. I am sure we've learned the lessons of before. I would expect the prices to lower as they have gone too high. The stock market is recovering and that will divert investments from capital projects.

[Brian Turner]

You'd think we would have learned - but the housing market, IMO, has become quite unsustainable. This is soemthing I'm a little passionate about because I'm sure we've seen these warning signs before.

The stock market is recovering - and this is what will help contribute to the devaluing of the housing market - that coupled with rising interest rates. People will move their investments from housing to stocks as the latter entices as the more lucrative investment (especially if people can sell-off their housing at maximum profit now, and invest in the rising stocks now).

Anyway, here's an article from the BBC:


Price bar hits first-time buyers

First-time buyers cannot afford to buy a home in 80% of UK towns, a survey from the Halifax bank has suggested.

According to the study, average-priced homes in 531 out of 667 UK postal towns were beyond the means of people on average salaries.

The problem of affordability was most acute in the south of England, where house prices have outpaced earnings.

Toughest of all is Hemel Hempstead, where an average home costs 11.9 times a first-time buyer's income.

Borrowing more

At the other end of the scale, Grangemouth and Lochgelly in Scotland are the two most affordable towns, with property costing just 2.66 times average salaries for the region.

In England, Bootle on Merseyside is the most affordable location for first time buyers.

"Affordability is clearly a serious issue for first-time buyers and one that shows no signs of abating in the near future," Shane O'Riordain, group economist at Halifax said.

"First-time buyers will find the going tough again this year as house price growth continues, especially outside London." However, most first-time buyers by clubbing together with their partner or a friend could still afford a home, the bank said.



From: http://news.bbc.co.uk/1/hi/business/3537055.stm

[Mylo]

Self certification mortgage applications seem to have had an affect on the house price increase, prices are still rising therefore people are using all processes to there advantage in order to get onto the property ladder. In some circumstances this means embelishing the truth about your income to show that you can afford a £200,000 house when in reality you could probably only afford to buy a property to the value of £80,000.

If people will buy at high prices the market will remain at high prices, logic would dictate that something must give at some stage somewhere!!!!

That's my little moan for the afternoon....

[Brian Turner]

Hi Mylo, and welcome to the business forums!

Certainly true - and what's amazing is how easily people walk into it all, imagining that low interest rates will continue for decades?

It's sad to think the effect this will all have in the end when the bubble finally bursts - certainly on those who homes are going to be at risk.