Who should stop a housing bubble?

publication date: Mar 6, 2014
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author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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When is a bubble really a bubble - and who's responsibility it is to stop it?

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The latest news from the Land Registry suggests some areas are now growing at a higher rate year on year than they would do normally. Of course Land Registry stats are often some months behind the market, so as I'm not hearing prices dropping back anywhere, it's likely these markets are hotter than the numbers suggest. 

Areas growing at a faster rate than their annual average (based on prices 2013 versus 2000):-

  • Hackney's average annual price increase is 19% and 2014 versus 2013 is currently at +20%
  • Waltham Forest average annual price increase is 13% but currenting it's 18%. This isn't the highest growth rate the area has seen though. In 2000, prices rose by a staggering 31% year on year!
  • Wandsworth and Lambeth average annual price risets are normally 12% and 13% respectively and worryingly are up to 17 and 16% year on year.
  • Hammersmith and Fulham and Lewisham are running at just over their annual averages of 14% and 13%, averaging at 15% 2014 versus 2013. 


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Is it really a bubble or just a recovery?
It doesn't necessarily mean these rises are in 'bubble' territory though. Take Hackney for example. Over the last six years, prices have grown by 36% since the last market high in 2007/8. Take the annual average over the six years, and this means prices grew at 6% versus their norm of 19%. So to some extent, property prices in Hackney are 'still good value'. Not that anyone trying to buy there on a limited budget would think so.

And it's true that London is full of mixed performances (a bit like the theatre productions...). Some areas are still great value for money, although this won't last long, as all saw price increases 2013 versus 2012. 

So here are my top three 'bag a bargain while you can' areas:-

  • Barking and Dagenham, prices up 10% 2013 versus 2012, however prices are still 10% lower than 2007/8 levels
  • Newham, property prices +4% 2013 vs 2012 year on year, but prices still 8% lower than 2007/8 heights
  • Bexley, +7.5% YoY, with prices just below their peak levels at 3%  


Who should stop a bubble?
I'm not actually sure who is responsible for deciding we have a bubble - and certainly those that are peddling the idea can't live anywhere but Zones 1 or 2 of central London. Clearly, they never visited Blackburn like the One Show did, where prices are still down 20-30% versus the market height, and dropped 5% 2013 versus 2012.

My definition I guess is whether the prices are rising year on year faster than their average, as this level of activity may not be sustainable - and that's important.

So if it's not 'sustainable' what or who will stop it? Well, for starters, we've got six years of frustrated first time buyers out there, so demand will probably remain as high as it is now for another year. Then many of these 'would be' first time buyers may end up being 'priced out' of the area, so demand drops.

We've certainly seen a fall back in price rises in areas early to recover from the bubble such as Kensington and Chelsea. However, Kensington and Chelsea is really a law unto itself, somewhere for the international rich list, not your everyday buyer, seller or investor.

So I think the buyers themselves will start falling by the wayside as 'pent up' demand softens. More people will then have the confidence to sell up, so I hope that supply and demand will start to match a little better - meaning price rises go back to their 'norms' or even lower.

Partly it will depend on what happens with interest rates, although these seem likely to be low now for some years, so unlikely to stop people's appetite to buy.

And really the valuation of a property is the responsiblilty of the lender and of the surveyor. They are the 'experts' in property, and they shouldn't be lending or signing off mortgages unless they are confident the property is genuinely worth what the buyer is paying. Another complication to this though is 35% of buyers (on average) are cash, so in this case, it's down to the buyer to secure a fair price to pay for the property from a level headed, independent RICS surveyor.

So for now, we'll just have to wait and see. In 2000, most prices in London rose by in excess of 30% year on year, but hopefully lenders and surveyors have learned lessons from the past, and will not be quite so ready to sign off higher than average valuations.

What are your thoughts? Who should stop the bubble? It would be great to hear from you, ideally by linking up to my Residential Property Group.

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