Assetz® News - Property boom tainted by bust claim

Property boom tainted by bust claim

12th October 2006 |

Continuing positive news for the housing market has been marred by a debate over whether the UK will see a crash in property prices in the long-term.

Surveys released today from the Royal Institution of Chartered Surveyors (Rics) and Nationwide both showed that homeowners are gaining rapid returns on their properties and that the price increases look like they are in no mood to slow anytime soon.

Nationwide's survey of the third quarter showed that the annual rate of house price inflation in the UK increased by 6.9 per cent, the fastest rate of annual growth since the first three months of 2005.

Meanwhile Rics reports that prices rose for the 11th consecutive month in September, at the fastest pace for four years.

Some 45.1 per cent more chartered surveyors reported a rise than a fall last month, considerably up from 34.9 per cent in August and double the long-term average of 21 per cent.

The institution said that the growth was led by properties in London and the south-east and was fuelled by a booming City economy, rising investor confidence and a limited supply of property.

Concurring with these findings, Nationwide revealed that the average house in the UK is now worth 6.9 per cent more than a year ago. It also found that the London market performed better than any other in England, with annual growth of 7.3 per cent. By contrast, homeowners in the north only saw the value of their property rise by 0.8 per cent over the same period of time.

But this positive news resounds ominously with a cyclical economic philosophy developed by economist Fred Harrison, author of Boom Bust: House Prices, Banking and the Depression of 2010.

He told BBC Radio Five Live's Wake Up To Money programme: "We always see a ripple effect that starts in London and the south-east and then reaches out to the farthest corners of the United Kingdom.

"We're now into the final phase of the second ripple effect. In the past six months it's been London and the southeast that's had most of the gains, and this will creep out to the rest of the UK before we see the crash."

In his book, Mr Harrison has studied several industrial nations over the last 300 years coming to the conclusion that there is an 18-year property cycle which has recurred all over the world and in different political and economic conditions.

He predicts that the next slowdown, to begin in 2008, will herald a damaging crash two years later.

Speaking on the same programme, Peter Bolton King, chief executive of the National Association of Estate Agents, rubbished this claim, saying that the current economic trends do not point to a housing market crash.

"We haven't got indications of massively high interest rates on the way, we have not got indications that unemployment is going to go through the roof, and we have a shortage of supply of property in many many areas."

"That does not indicate, from an economic point of view, that we're suddenly going to see a crash," he concluded.