It’s obviously happening even though buying power is generally stretched and house sales are generally subdued.
The idea that house price rises are an indicator of improving health in the wider economy is seriously flawed.
Here’s our take:
The housing market itself tends to behave very like a hot air balloon, so let’s use that as our analogy. Why not if it’s a good one!
Injecting heat, using the propane burner: is the same as providing more bank or building society lending.
The more lending (or injected heat) that is put in, the higher the balloon will rise. Rising altitude is like rising house price levels.
The first thing to bear in mind is, there is a significant delay between the time you fire up the burner and the moment the balloon begins to rise or ascend into the sky.
The second is that deft skill is needed so as not to put too much heat (or currency) into the balloon or it will go up, too high too quickly!
The converse is, that if not enough heat is applied, the balloon (representing the housing market) will gradually descend.
Again, deft skill is needed in order to avoid a continual and irreversible descent, leading to a collision with the ground - or a house price crash!
For the housing market to attract buyers with confidence to commit, a balloon (or housing market) that is controllable and safe and can cope with the types of weather (or employment prospects) experienced in our part of the world would be needed. In this scenario flyers (or buyers) would be unlikely to wish to embark on a voyage without sufficient confidence.
Importantly, in order to ensure a successful balloon voyage, people need a well-trained and experienced pilot to control the propane burner or amount of mortgage lending going in. The pilot in this analogy is represented by the B.o.E.’s divested powers which have been granted to them by our elected government.
The quantity of lending clearly needs to be ‘measured’ as well as being increased at precisely the correct time if those in the housing market are to see the advantages in embarking on house ownership, sufficient to attract them in. It’s exactly similar to those wising to experience a lasting and pleasurable balloon voyage. They need to have sufficient confidence in the pilot, a.k.a. the government (and the balloon of course) to know there won’t be excessive highs or dangerous lows in altitude whilst they, the house-owning public are on board!
So what are the controls of the housing market and how should they best be operated?
In this analogy:
The balloon: is the housing market itself.
The pilot: is the government including those regulating agencies which they appoint.
The propane burner: is the machinery that injects ‘money’ (as opposed to heat) into the housing market.
Altitude: is synonymous with rising prices.
The Top Release Valve: is what The B.o.E. can use to calm an overheated market.
The weather: is the employment prospects in the locality, which are always variable.
The basket slung below the balloon contains the house-owning public for the time being. These are the people buying or causing the demand that gives rise to sale-prices in the first place.
Just as with the top release valve in an air balloon, if it is not actuated when it should be, too much ‘heat’ is allowed to carry the balloon too high, i.e. higher then is required for a smooth and safe journey. Adverse weather conditions may, of course, be encountered if this is allowed to occur.
In a similar way, The B.o.E. can (and should) restrict mortgage lending, to quickly cool an over-heated housing economy irrespective of the wishes of those with divergent interests or agendas.
In addition, it needs to be understood that first applying too much heat and then letting it escape from the Top Release Valve later, is extremely wasteful of energy (or mortgage resources). It is likely to exacerbate price rises followed by lower prices later on.
So you will see, there is far more to presiding over the housing market than simply pumping more money in, when you think you might like prices to go higher!
Having given this analogy after careful thought, we’d like to leave it to others to add to it or comment at will!
So, with this in mind, here is our explanation of where house prices sit, as an indicator of the level of the health and vitality of the housing market as a whole marketplace:
House price levels are NOT a true indicator of the state of the housing market.
That indicator is instead the percentage of successful house moves, per million of population.
There is an optimum price-level which can bring about the highest percentage of moves, and thus provide the healthiest economy, by allowing optimum work-force mobility.
It is the latter that is the primary object of house ‘ownership’. Increasing house values are really only a by-product of the amount of health there is in the nation’s economy and in the housing market. Just forcing prices up does not, in itself, produce a healthy economy so be warned:
House prices which are rising owing to people’s desperation and worry about their dwindling level of private wealth are a misleading indicator. It’s really only a ‘fear’ indicator and not a measure of how healthy the housing market is, or indeed how healthy the whole nation’s economy is.
The true indicator of the state of the housing market is the percentage of actual house moves per million of population - NOT house prices:
For more, including a full explanation of how to correct these anomalies, once and for all, please see:
Want a functional, stable housing market?: Full explanation given.
Wishing a Happy New Year to all whom read this
Posted by: Property Match (UK): The modern way to market houses