Housing is a popular spot for worries. Why?
After all it was housing that caused the financial house of cards to come down. Over the last few weeks there’s been quite a bit been said about rising house prices and bubbles and risks being re-ignited but is it all folly?
Nearly all the major economies have had a recession, which has seen drops in activity and falling prices across all sectors, so why is everyone getting their knickers in a twist when one large sector of an economy shows improvement? We’re not 5 or 10 years into a recovery that’s rocketing away, we’re still in the infancy. If we were then I’d be worried.
So what if house prices are going up? Perhaps they should remain weak like the rest of the recovering sectors. Would we be calling a surging jobs market a risk bubble, or manufacturing, or services? I very much doubt it.
House prices are an easy target, but just like retail sales they are volatile and open to being one of the first things to move when an economy does. People were scared off as the mortgage market collapsed, but everyone wants a home and people were not going to sit on their hands forever. Mortgage rules have been tightened up so that people can’t borrow well above their means (now they can only borrow slightly above their means)
so the mortgage market is more secure.
In my mind I’m not buying the bubble talk just yet. House prices went down and markets stagnated so it’s natural they recover and house prices go up, isn’t it?
The worries shouldn’t be directed at house prices as the biggest risk bubbling under the surface is interest rate rises. We’ve all mentioned it before (both commentators and readers) as this issue could cause another housing collapse. Your average Joe and Joanna aren’t ready or financially equipped to wear rates returning to normal. This is the reason people are becoming wary of price rises as higher prices mean higher borrowing and the cycle of run away borrowing can kick off again.
While it obviously pays to be prudent and (hopefully) learn from previous mistakes, our governments and central banks have one hell of a task to steer the housing market. Keeping low rates for a long time is an incentive to borrow for the general public. Businesses are still wary, and rightly so, but the average man has proven time and time again that he’s not that clued up.
We are very likely to see a bubble, make no mistake, but it’s not happening yet and so we should let the market take it’s natural course, for now.
Not just yet