EDITOR'S LETTERMerryn Somerset Webb
The bubble is back
Until very recently it might have been possible to say that the British housing market was heading in the right direction. Average prices across the country were just below where they had been back in 2007 – so down 20% or so in inflation-adjusted terms. Take London out of the equation and they are down rather more – 5% in nominal terms and well over 20% in real (inflation-adjusted) terms.
Some areas of the UK were even hitting prices that make sense relative to history. Prices in parts of the north are down 40%-plus and, according to Sky Research, you can now buy houses in the likes of Blackburn and Durham for three or 3.5 times the average salary. There has also been less pain than you might expect involved in these pretty dramatic house price falls. Very low interest rates and endless bank forbearance, coupled with the kind of inflation rates that can really help make debt go away, have kept the wolf from a good many doors.
We haven’t exactly been 100% supportive of government policy over the last few years. But if the big idea was to keep nominal house prices flat and to bring real prices down without causing too much of a drama, it was (bar London!) surely working.
The problem now? The coalition is messing it up.
• Read the full editor’s letter here: The bubble is back