The coming house price boom?

The headlines recently have been full of stories about rising house prices.  The CBI has recently warned on house prices increasing at an unsustainable rate with projections of 8.2% this year and 5.1%.  So are we entering another house price boom?

House price dead cat bounce
Followers of the stock market will be familiar with the concept of the 'dead cat bounce'.  It where prices recover briefly after a dramatic sell off only then to carrying on moving south.  This in my mind is where the current housing market in the UK is at & here's why:

• London house prices are not UK house prices - don't expect the boom to trickle down.  London boom is a result of international factors unlike the remainder of the UK.
• House prices are not cheap - current prices mean that the average price to first time buyer income is at 4.5 still way ahead of the long-term average and way up on the low of 2.0 reached after the last house price crash.
• We are not getting any richer - house prices a only a function of our wealth and incomes along with our abilty to get credit.  If we are not getting better off there is no reason why they should go up in value
• Interest rate will go up...alot - interest rates and therefore the amount that we all will have to pay on our mortgages will double, treble even quadruple in the coming years.  That's not going to help prices.

The long view on house prices
The house price boom of the last decade is still unravelling and probably has another 5-10 years to truly unwind and find a sustainable level.  Government knows that that with the banking sector and consumer confidence dependent on the state of the market that a healthy housing market is a prerequisite of a growing economy - hence the initiatives like Help to Buy to engineer a 'mini boom'.  The housing paradox is that the more uncertainty people feel in the state of the economy, the more they stick their money in what they understand i.e. 'bricks and mortar.'  So even when the economic crash was caused largely by a credit induced house price boom and overvalued house prices this only exacerbated the tendancy for households to put more of their spare cash into their houses reinforcing or sustaining the problem.  So whilst the long-term prognosis for house prices isn't great, with this kind of behaviour then maybe house prices will continue to defy gravity for many more years to come.

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