by Mark Johnston
Are House Prices all They Seem to be?
It is encouraging to see that the housing market now appears to be picking up across most parts of the UK, despite ongoing concerns about the wider economy. This may in part be due to the ever growing availability of cheap mortgage finance through schemes such as the funding for lending scheme.
Miles Shipside, director and housing market analyst at Rightmove, the property website, said “buyers have had their appetite whetted by government initiatives”.
It seems then that as potential house buyers take advantage of the record low interest rates and also the falling mortgage rates, property transactions in the UK have reached their highest levels in two and half years.
Grainne Gilmore, head of UK residential research at Knight Frank estate agents, states “some five years after the start of the financial crisis, the housing sector in the UK still does not bear the hallmarks of a fully functioning market”.
The Royal Institution of Chartered Surveyors (RICS) have revealed that many surveyors are ‘cautiously optimistic that this recent trend will continue.
Therefore, some experts feel that the current affordability within mortgage finance maybe masking a problem such as the fact that it appears some properties are becoming overvalued.
Property experts have suggested that UK house prices are probably overvalued by around 25 per cent.
David Blanchflower, a former member of the bank of England monetary policy committee, adds “nominal house prices will have to fall by a further 15 per cent to reflect their true market value”.
House prices have risen by 6.9 per cent so far this year. Data from property website Rightmove, shows new sellers asking prices in April 2013 are on average 2.1 per cent higher than March 2013.
It appears that this quick increase in prices is being fueled by positive market sentiment and also a lack of new property coming on to the market. As recent figures show that the number of newly marketed properties is down 4 per cent compared to the same time last year.
The fact is that ever since the financial crisis began, government and bank of England policy have been directed at primarily propping up house prices. This is despite the fact that a housing ‘bubble’ was a key part of the problem in the first place.
It seems then that it is all about winning votes, the chancellor George Osborne, knows that if he is to have any chance of keeping his job, house prices have to at least stay stable.
Meaning that some economists believe that house prices in Britain are therefore artificially high at the moment.
Some industry experts stated that prices actually falling would be the most effective way to get first time buyers on to the property ladder.
George Buckley, of Deutsche Bank, said “if interest rates were ever to return to ‘normal’, we would soon realise how overvalued the housing market actually is”.
All in all it looks like due to the lack of housing supply and the government intiatives overvalued housing will prevail for some time.
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