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Winter blues far from property market
The housing market is showing no signs of cooling down as we head into the winter months, driven primarily by the continued imbalance between supply and demand. An 8 - 10% growth for 2007 and 2008 is predicted, allowing for an additional interest rate rise in January.
The six major UK house price indices show an average of 8.7% annualised growth for the twelve months prior to October 2006. This is a 0.4 % increase on the previous month (8.3%) and a 4.4% increase since the beginning of the year (4.3%).
Bank of England wrong?The Bank’s decision to raise interest rates this month to 5% to combat inflationary fears could in fact help deliver inflation, by driving demands for higher wages through perceptions of an increased cost of living. House price growth is driven almost entirely today by the growing need for new homes. This is a result of the Government’s immigration policy and the huge rise in single-person households, along with severe planning restrictions which prevent housebuilders from responding to demand.
“The Bank of England is perhaps looking too closely at house price rises as part of the inflationary mix, still believing rises to be interest-rate led. In fact, the growing demand for homes, driven by high immigration and the forthcoming expansion of the EU to include such countries as Bulgaria, Poland and Romania, will be the main source of house price growth over the next few years, rather than low interest rates which primarily drove price rises up until 2005," comments Stuart Law, Managing Director of Assetz.
“House prices are not something the Bank of England should attempt to manage, as it would take excessively high rates to prevent the fairly unique supply/demand imbalance in this country from driving up prices, resulting in soaring repossessions. The very immigration helping drive house prices upwards is that which is also helping moderate wage demands, through ready supply of labour into our booming economy.
“Analysts have already made a large error in their inflation forecast by stating some months ago that new university tuition fees would drive inflation to 3% - in fact it has resulted only in an inflation level of 2.4%, a rise of just 0.12% due to this factor. It is quite possible that inflationary fears by economists do not match the reality of the situation and that rates may not rise again early next year as predicted.”
Average UK house price rises
The average house price, taken from the average price provided by all six major indices is £195,267, up from £194,151 in September. This shows an increase of £1,116 in the value of the average property in the last month, and an increase of £14,958 in the twelve months from October 2005, when the average price of a home was £180,309
