When is a Housing Bubble NOT a Housing Bubble?

publication date: Jan 13, 2014
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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When is a Housing Bubble NOT a Housing Bubble? 



I don’t know about anyone else, but I'm a bit fed up. After all the information, data analysis and commentary from real experts in the property market saying “there is no evidence of a bubble”, the idea of a ‘housing bubble’ is still being used to scare people looking to buy. I think that’s a little unfair too! 

So, here’s my next attempt to show the difference between:-
  • Property prices rising as normal
  • Property prices rising as they did during the ‘millennium bubble’ 
Job Number One: So where did the idea of a ‘bubble’ come from? 
The idea behind the ‘bubble’ was the Help to Buy Scheme would raise prices artificially by increasing demand and not increasing supply, thus prices would go up. 

When the scheme ended, demand would fall, while for some reason which no-one has explained as yet, supply would remain high. This would result in prices falling. This would also leave those who had bought, in a rut with properties worth less than they had paid them for. 

Job Number Two: Establish the principles behind an asset in ‘bubble’ territory 
According to a great book I read called “When Bubbles Burst: Surviving the Financial Fallout” by John P. Calverley, his checklist for a bubble included:-


Typical Characteristics of a Bubble Yes xNox
Rapidly rising prices, high expectation this will continue London only
Over-valuation compared to historical averages x
Some underlying reason or reasons for the higher prices  x
New entrepreneurs in the area x
Considerable popular and media interest x
A new element eg tech’y x
Subjective paradigm shift x
Major rise in lending, new lenders or policies x
Several years into an economic swing x
Increase in indebtedness, falling household savings rate xxxxx x
Consumer price inflation often subdued x
Relaxed monetary policy x
A strong exchange rate x


The reality is, a few of these things are true, but the majority aren’t, especially when looked at over time. What we are seeing, is property prices rising and although they appear to be rising faster than they have over the last six years, that’s not a surprise as they have been heading downwards or stagnant for years! 

Job Number Three: What’s the average annual growth of property prices since 2000? 
I think we can agree that it’s only really in London where people believe property prices are in ‘bubble territory’. 
  • But what rates were property prices growing at year on year during the bubble period? 
  • Are they increasing at the same rate as now? 
  • Did they increase between 2013 and 2012 at a higher or lower rate? 
We’ve analysed the house prices of each of the 32 London Boroughs. 
We’ve calculated their individual average annual increase since 2000 (ie the last 13 years).

So ..... Job Number Four: How many London Boroughs are growing at more than the annual average? 
What do you think? All of them? Half of them? None of them? 

Well, here’s a clue:

"Greater London property prices are up 10.8% from 2013 to 2012 versus their long term average of 11%” 


CLICK HERE to find out the rest!


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