EDITOR'S LETTERMerryn Somerset Webb
Nasty pockets of bubble
James Ferguson shocked a few readers at the MoneyWeek conference two weeks ago when he said that average house prices across the UK are no longer particularly overpriced – relative to household income, they are just about in line with historical averages.
That doesn’t mean they won’t fall if interest rates rise sharply. And it doesn’t mean that they won’t keep rising if the government continues to relentlessly fiddle national policy in their favour. It just means that it is no longer reasonable to refer to a UK-wide bubble.
We actually entirely agree with James on this one. We have pointed out numerous times in the last year that in much of the UK there has been a proper house price crash. In parts of the north and west, prices have fallen a good 40% (and could now even be considered undervalued).
In the southeast, inflation-adjusted prices had at one point fallen some 25% from their peak. And even now, with the rises of the last year taken into account, prices adjusted for consumer price index inflation are down 16%-17%.
The problem, as we see it today, is not that we have a nationwide bubble, but that we have nasty pockets of bubble in London, and near-bubble in bits of the southeast that distort the numbers.
• Read the full editor’s letter here: Nasty pockets of bubble