A prime example showing the way in which the market operates is badly distorted, is London.
Sharply rising prices are undermining government efforts to help more people on to the housing ladder in London.
In The Financial Times today it is reported and I quote: “Sharply rising prices are undermining government efforts to help more people on to the housing ladder. The average price of homes bought by first-time buyers rose 7.4 per cent – significantly faster than the 4.7 per cent increase experienced by other buyers, the ONS data showed.
Stephen Smith, director of Legal & General’s mortgage club, said the situation in London would “soon make the capital unaffordable for ordinary families”.”
Plus “The rest of the country was seeing price rises that were broadly comparable to the rate of inflation, Mr Smith pointed out. “As such, the wider picture in the UK shows a pretty orderly market with a modest rise and no housing bubble,” he said.”
But what is not fully reported is that volumes of completed sales are running at a mere trickle compared with pre-crash throughput; and even that wasn’t particularly high at the time.
Again this strongly suggests that things are far from right in house-marketing circles.
My take on this is that we are almost running at pre-crash house price levels again, suggesting that the house price crash only lasted a year or two. ONS graphs clearly confirm this is so. In effect we are back in a house-price bubble, even though there is no commensurate economic recovery - quite yet.
Until prices moderate themselves down to market affordability levels, sales throughput cannot possibly re-establish itself.
My proposal for accomplishing this without the need for direct intervention in the marketplace (the latter never being a very good idea), is to re-organise estate agents so that they have to deal with both sales and purchases on behalf of individual clients.
If they were to be responsible to do both, they would get real hands-on experience of current market prices and thus be better able to advice both buyers and sellers on the state of the housing market at any particular time (and location).
Unless this is done very soon, first time buyers will be shut out of large parts of the UK, the very thing the government does not want to happen.
If first timers are shut out, prices will eventually fall anyway but by that time immense damage will have been done to the Nations’ economy. That is too high a price to pay for letting the market simply sort itself out and most economists know that complex markets like the UK housing market don’t naturally tend to sort themselves out anyway. It’s well known that such markets need clever external management in order to become and remain efficient.
Doing nothing about this, simply isn’t an option.
For full details of how our proposals could be put into effect, please go to an article on our blog entitled:
Earlier article on our blog site: Full details of our current proposals.
Posted by: Peter Hendry, Consultant in Housing Valuation at Property Match (UK)