High house prices are bad news for us all

Markets might be a bit nervous at the moment, but one asset class is proving as impervious as ever. 

Yes, the good old UK housing market is as robust as ever. In fact, according to the latest Halifax data, prices are now rising at the fastest rate in 15 years (albeit on one specific measure). 

Whoopee! Imagine how happy we'd be if this was our investment portfolios. Early retirement, here we come. 

It's just a shame we have to live in the damn things - as do our kids...

House price bubbles are the worst kind

House prices in the UK were up by 8.2% year-on-year in November. And up 3.4% on the quarter (the fastest such growth since 2006).

In short, stamp duty changes and a "will-we, won't-we" approach to returning to the office has failed to put even a whiff of a dent in the housing market. 

To be clear, in case anyone is misusing my sardonic tone for enthusiasm, this is a bad thing. 

We can all have a laugh at idiots (or visionaries, jury's out as far as I'm concerned) spending millions on graphics of bored monkeys or 8-bit punks. That sort of speculative bubble is harmless. It might even push the boundaries of financial technology. 

But forcing young and not-so-young people to borrow to the hilt - whether it's sensible or not - simply to put a (often badly built) roof over their heads is politically, financially, socially and economically toxic. 

Housing bubbles cripple an economy when they burst. And unlike every other investment bubble, they leave no legacy of cheap infrastructure on which to build a future boom. 

They just leave indebted, possibly homeless individuals; bankrupt housebuilders; and a devastated financial system which then wreaks havoc on every other sector. 

But it's not just the eventual bust that's a problem. The boom is rubbish too. A lack of cheap housing makes it harder for people to move for work. It makes it harder to start a family. And it adds to the feeling that we live in an unfair society. 

In fact, it's at the root of this feeling. I'm almost 100% certain that rage about wealth inequality and the new fetish for fantasy communism among some young (and not-so-young) folk would evaporate overnight if it wasn't so bloody hard to buy a liveable property for anyone lacking a massive deposit or family funding. 

This is almost entirely about cheap credit

It's not much consolation, but contrary to the impression you may sometimes get, this is not a uniquely British disease. 

I was reading an article in an Australian financial paper yesterday where the writer was bemoaning the ridiculous state of the Australian property market and calling for credit controls on mortgage loans. 

And this is what it boils down to. It's not about physical supply (yes, planning etc is an issue, but purely building more won't solve the basic problem). It's not about physical demand (every time I write about this someone brings up immigration - I understand why, but again it's not the core issue).

What is driving this near-global boom is low interest rates and cheap credit. And  the thing to remember about the housing market is that it lags behind moves in the Bank of England rate (assuming that even moves). 

Because once you get to the expansionary bit of the cycle, mortgage lenders are competing for business while buyers are panic-buying with a "before stocks run out" mentality. 

So how does this end? I don't know. The housing market is similar to the market in government debt. It's hard to see how you get to a more sustainable position without significant inflation to eat away at debt and also improve affordability.

Of course that pro-inflation policy also implies that rates will stay low, which in turn implies that house prices won't crash. But that in turn points to a continued build-up of political pressure which could result in a larger societal shift (maybe property taxation of some sort).

What does it all mean for you? Everyone had different circumstances. There is no point, as I've said before, in trying to time the market. 

If you're buying or remortgaging, just make sure you can afford it and lock in the longest cheapest fix that makes sense for you (within reason). Beyond that, don't put all your eggs in one basket.