In a recent speech to the Worshipful Company of International Bankers the Bank of England’s Deputy Governor for Financial Stability drew attention to the fact that in April over 500 newspaper headlines mentioned house prices. Why on earth is the Bank keeping stats on this you may ask? Well it all boils down to trying to manage unrealistic expectations around the trajectory for house prices.
“Expectations of a fast rising market put pressure on potential buyers to get into the market as quickly as possible for fear of being priced out. And on sellers to delay and ask for higher prices.”
And here’s the rub:-
“The laws of supply and demand must, in the end, apply also to housing even in the UK. House prices cannot grow faster than earnings indefinitely. While households may be prepared to spend an increasing amount of their income on housing, there is a level at which house prices are simply not affordable.”
And all this with rock bottom interest rates? Before the financial crisis Mervyn King made several speeches warning of the perils of under pricing risk. The vast majority took no notice. Will they look behind the headlines this time?