Nationally, house prices have increased by 7% in the first 11 months of the year. Activity has also picked up with transactions likely to exceed one million for the first time since 2007, the Halifax says in its Housing Market Outlook report.
Further economic recovery and low interest rates will support the residential property market but several factors, including continuing pressures on household finances and the potential for more properties to come on to the market, should limit the increase and avoid a housing bubble.
According to Martin Ellis, Halifax’s housing economist, there is little current sign of the excessive behaviour associated with a house price bubble and he pointed that the authorities are also on guard to take action in the event of signs of overheating.
While 2013 has been characterised by property price growth in the south east of the country, particularly London, the regional pattern is expected to be more even in 2014 with all regions experiencing price gains.
Looking further ahead the forecast is for only muted rises in house prices after 2014 as increased supply, eventual interest rates rises and high house prices relative to incomes, dampen upward pressure.
'The housing market has been stronger than expected during 2013. Higher demand, combined with an insufficient rise in housing supply, has resulted in increases in house prices and higher activity this year. Low interest rates, and higher consumer confidence due to the increasing evidence that a sustainable economic recovery may now be underway, are helping to stimulate housing demand. Schemes, such as Funding for Lending and Help to Buy, also appear to have boosted demand,’ said Ellis.
‘We expect house prices to continue to rise during 2014, most likely at a broadly similar pace to that during 2013. Overall, prices nationally are forecast to increase in a range of between 4% and 8% next year,’ he explained. He also pointed out that there are mounting signs that the economic recovery is becoming firmly established.
‘Together with a predicted decline in unemployment, this should further boost consumer confidence. This will increase the likelihood that more people will consider buying a property in 2014, therefore supporting housing demand,’ he said.
‘We also expect the Bank of England Bank Rate to remain very low, helping to support low mortgage rates and, therefore, housing demand. Typical mortgage payments for a new borrower, both first time buyers and home movers, at the long term average loan to value ratio, accounted for 27% of disposable earnings in the third quarter of 2013, its lowest proportion since the second quarter of 1999 and comfortably below the average of 36% over the past 30 years,’ he added.
As with many analysts, he expects the Help to Buy scheme to stimulate housing demand in 2014 by helping potential buyers, who have been struggling to accumulate a sufficient deposit, to enter the market.
‘Whilst there are many uncertainties around the impact of the Help to Buy mortgage guarantee, we do consider that the likely impact has most probably been exaggerated by a number of commentators,’ said Ellis.
But he warned that several factors should limit the increase in house prices.‘Continuing pressures on household finances, as earnings again fail to keep pace with consumer price inflation, are expected to continue to contain the upward pressure on the rate of growth of house prices in 2014,’ he explained.
'The recent strengthening in house prices is increasing the amount of equity that many home owners have in their home. This should enable more to put their property on the market for sale over the coming year, boosting supply and helping to curb the upward pressure on prices,’ he pointed out, adding that the recent decision to end the Bank of England's support for mortgages under the Funding for Lending Scheme is also likely to act as a constraint on the market.
So overall he concludes that it is too early to talk of a housing bubble. ‘Despite the recent gains, house prices remain 12% below their August 2007 peak and transactions in 2013 are still around a third below the average for 2006 and 2007. House prices are also lower in relation to earnings with the average price currently 4.8 times average annual earnings compared with a multiple of 5.8 in 2007,’ Ellis said.
