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What next for the housing market – will the bubble pop?

There's some contradictory evidence out there. What are we to make of it all?
By Damien Pooley

June 2014: So, is the market overheating? Well, yes… and no. According to latest figures from the Nationwide average UK house prices have increased by 4% since the beginning of the year alone. The Halifax contradicts this with a fall of 1.4% since February. What’s the truth?

In reality, it’s probably fair to say that the fall that the Halifax has seen is probably a temporary event – most other sources suggest growth in a similar vein to the Nationwide. It may also be that the Nationwide has a customer base that is more, well, nationwide, than the Halifax meaning that the “London Effect” is even greater.

Interestingly, concerning the overheating question, the differences are even more striking. At the market peak in the summer of 2007, the Halifax reported prices that are similar to now, but the Nationwide showed figures that were 12% higher than currently seen!

The truth of the matter is that house prices have significantly increased from what has been considered as the new norm since the economic depression. This shift, which equates to between 7% and 10% depending on whose figures we look at, has happened quickly and inevitably this causes nervousness in the market. Fears of another crash are hard to overcome.

The market isn’t overheating yet, in my opinion, but I am more concerned about what effect any sudden change in interest rates will have. If people are stretching themselves already to buy property, and with inflation still higher than wage inflation will a now impending increase in rates push them over the financial cliff?

That one will only really be answered when the increase comes – we’ve been promised that it will be “gradual and limited”. The key part is how gradual and how limited…

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