Concerns over house prices fall on deaf ears
Alarms over spiralling house prices have been sounded so often in the past two years that no one takes much notice any more, said The Independent. The latest Halifax survey shows the average house in the UK now costs over £150,000, double the cost of five years ago and five times the average income. The usual hand-wringing from economists and shrill cries that it will all end it tears are unlikely to have any effect. People love the security of their fast-growing live-in investments. And with the recent catalogue of insurance and savings company disasters, who can blame them?
Maybe so, but the combination of cheap and easy borrowing and a reluctance to build more houses is “explosive”, said The Observer. Would-be first-time buyers must take on ever more onerous mortgages. If interest rates have to go up suddenly, the housing market will judder into reverse just as it did in 1988.And as in 1988, no one now believes it will really happen.All of which made this week’s interest rate decision even trickier, said Michael Harrison in The Independent. The housing market “screams out that it’s about to burst”; it needs a managed slowdown through gradual rate rises. A quarter point increase is just about right - a half point might have precipitated a housing-market collapse. But on the other hand, increasingly poor industrial output figures suggest manufacturing’s nascent recovery is “on the skids”, thanks to sterling’s strength - that calls for keeping rates low. It’s an almost impossible balancing act.
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Nonsense, said Alex Brummer in the Daily Mail. The quarter point rise was “better than a racing certainty.” So many different statistics gave the same message about the housing market. If the bubble bursts, the consequences for the economy would be horrific. Expect the Bank to raise rates “again and again” until it convinces housebuyers that the boom “has gone too far.”
