Just a tiny bubble.

Perspective has always been more relevant than short-term comparatives. This was never more important than when considering all the stuff presently being written about an impending or current “property bubble”.

Mortgage approval rates in the UK were around 107,000 a month in the extended period between the millennium year and 2007, that is, the seven years preceding the credit crisis. The average price of a house in 2007 was £186,044: the peak. Whilst it is true that house purchase momentum is rising steeply, this is deceptive in the potential causation of a property bubble. In absolute terms, figures published for the month of July 2013 show mortgage approvals of 60,624 (57% of the figure in the fat years of plenty) with the average buy price of £170,514 according to Nationwide (92% of the same comparator). Plus, price absolutes are deceptive since the big builders are constructing more proper houses and less flats and undoubtedly taking profit advantage of the current lending scheme and the impending help to buy scheme.

So, actually, the bubble is a tiny one and the market does not believe the new B of E’s Governor when he forecasts low interest rates for nearly ever-and-a-day. One other factor is that in July 2013, UK consumers put a further £200m on their credit cards so that now a not-so-tiny £57.2bn is outstanding on plastic. A bit of a drag.

JGS 02 September 2013

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