The great house price debate
A GROWING band of economists and property market pundits are predicting a price crash, writes Andrew Oxlade.
According to Halifax bank, the average UK house price has doubled to £150,000 in the past five years - growth that is unsustainable, the gloom-mongers say. They argue that the market has run far too far ahead of itself and that a correction is inevitable.
The statistics illustrate the point. House prices have risen at a staggering annual rate of 15% in the past five years. This compares with an average annual increase of 9% over the past 30 years, according to Nationwide's figures. And data from Halifax show the average rise since 1930 to be less than 7% a year.
The bears say the market must return to this long-term average and that to do so, prices must either fall or stagnate in the next few years. They add that if the boom continues, the bust will merely arrive later and be more severe.
They also point out that house prices have hit record levels when compared with average wages.
The typical value is now 5.3 times the average salary, well above the long run average of 3.8 times and even higher than the previous peak of five in the late Eighties.
But the optimists point out that exceptionally low interest rates have made mortgage repayments much more affordable. Average monthly payments gobble up only 20% of the average wage compared to 40% at the peak of the late Eighties bubble.
Some bulls even argue that the dramatic fall in interest rates throughout the Nineties gave a one-off boost to the property market and that the higher prices can be sustained.
As the debate intensifies, we will keep you up to date with the arguments from the optimists and pessimists. Try these links:
Boom
COMMENT: The boom will go on
Bust
COMMENT: Control the boom, says IMF
COMMENT: Doom stalks housing boom
COMMENT: When will the bubble burst?
COMMENT: Shadow over house boom
Other property market news
Other useful links
Top UK property hotspots
Source: Halifax
editor@thisismoney.co.uk
