House prices: set to surge or downturn looming?
Two reports point to house prices rising for the foreseeable future, but academics warn the growth is 'unsustainable'
Views are becoming extremely polarised on the housing market.
On the one hand, a seemingly insatiable demand fuelled in part by population growth is prompting a wave of predictions that prices will continue to spiral higher. On the other, there is growing concern that the market is in the grip of a property price 'bubble' that will soon spectacularly burst.
Others believe a period of slower growth is "overdue" as housing becomes increasingly unaffordable. Britain's biggest lettings and estate agency, Countrywide, yesterday issued a profits warning and blamed a slowdown in the housing market, suggesting that sellers were sitting on their hands and leaving a shortage of homes for sale.
Are we heading even higher?
Among the latest experts to claim that prices will continue their meteoric rise is a report from the credit ratings agency Moody's, which advocates a strong investment case for funds and financial institutions to buy bundles of UK mortgage-backed debt. These securities are the same as those that contributed to the global financial crisis, which were generally given exemplary credit ratings but collapsed en masse at the height of a credit bubble.
Moody's cites the increasing demand for UK housing – not least because of the projected rise in the population to 70 million by the end of the decade – and the low default risk on loans due to rock bottom unemployment, which it says will combine to push prices higher, The Guardian reports .
Elsewhere, a report from the property analysts JLL says "better job prospects, rising wages and a more stable economy will drive a five year wave of activity in home sales and a surge in house price growth", especially in already expensive areas such as southeast England, the Daily Telegraph notes.
Prices in Greater London, the southeast and east England will rise by at least 24 per cent over the next five years, the report claims, with average prices ranging from £266,000 in the east to £620,000 in the capital. Property investments in Manchester, Leeds, Edinburgh and Bristol will also surge, outperforming their wider regions over the period.
Is there a crash looming?
Others believe that house prices are currently on an unsustainable trajectory. Academics at Lancaster University have published a report which they say shows housing in London, in particular, is out of sync with the rest of the country. They say that housing in the capital is far outstripping wage rises and that prices are so high there is "a risk they will crash".
Professor Ivan Paya, who led the study, warns that prices could turn by 2017. He told the Evening Standard that policymakers needed to ensure more new homes were built "to counter the effect, as the demand for housing continues to exceed supply".
The study echoes research from UBS last week (see below), which suggests that London has the most overpriced housing market in the world. Based on its analysis, the Swiss bank says that the market conforms to conditions which mean there is a 95 per cent chance of a "correction" in prices of at least 30 per cent over the next five years.
Or will growth simply slow?
Capital Economics recently said that with housing becoming increasingly unaffordable for both new buyers and those looking to upgrade, a period of slower growth is "overdue". The think tank has revised its forecasts and now predicts that price growth over the next two years right across the UK will be less than two per cent.
Lettings and estate agency giant Countrywide has blamed a slowdown in the housing market for its "shock profits warning", reports City AM. The company, which owns the estate agencies Hamptons, Blundells and John D Wood, said "the anticipated post-election recovery in residential transactions failed to materialise in any significant way". Stamp duty reforms have failed to stimulate the lower end of the market, while also depleting sales of houses worth more than £2m, it added. Due to the slow pace of recovery, Countrywide says its 2015 sales are likely to be five per cent below last year's levels.
Last month, the London estate agents Foxtons also warned that the market was "taking time to recover", emphasising the sluggish nature of sales. This is especially true in central London, it said, "where property transaction levels remain at historically low levels".