Prime Minister Gordon Brown needs all the help he can get today, after the build-up to tonight’s final leaders’ debate was entirely overshadowed by the remarkable ‘bigot-gate’ row (of which more here). And since the economy will be the main theme of tonight’s televised row, the latest housing figures out from Nationwide today – another 1% monthly rise means the average property is now worth 10% more than it was last year – look at first glance like good news for the Government; a sign that confidence is flooding back to this important market. But sadly for the PM, we’re not convinced this is anything for him to shout about…
Nationwide said average house prices jumped by 1% to £167,802 in April. That means they’re now 10.5% higher than this time last year – the biggest year-on-year jump since June 2007 – and within 10% of their peak in October 2007. And it reckons buyers taking out mortgages were still the main source of demand, despite the well-documented problems people are having getting the banks to lend to them. All of which points to a market enjoying a healthy recovery, right?
Sadly not. For one thing, we're comparing activity with the low levels of last year, when large parts of the market basically ground to a halt. And for another, the rise in prices is largely because of the limited supply of new houses coming onto the market (since most sellers able to wait are waiting). Since demand has outstripped supply, even bird-brains like us can work out that prices are going to rise - but as more properties come onto the market, that will change. Then there’s the effect of record-low interest rates, which have made mortgages cheaper than ever before; again, that won’t last forever (particularly if house prices are soaring). It’s also possible that post-Election budgetary measures could depress the market. So all in all, this price bounce isn't really good news, and it almost certainly won't last.
There’s also the more fundamental problem: UK houses still look over-valued in historical terms. Some would argue (i.e. not people who bought houses in 2007) that last year’s crash was actually a good thing, all things considered, because it made houses a bit more affordable relative to earnings. And that’s why this issue is a tricky one for the PM: arguably Labour’s policies helped inflate a housing bubble that may have made some people a lot richer (up until 2007, at any rate), but it also priced a lot of people out of the market and contributed to the depth of the recession.
Brown is presumably intending to claim tonight that he brilliantly saved us (and the world) from a financial crisis entirely of the US’s making. But the problems in the housing market don’t really fit into this narrative. So if we were him, we’d steer well clear of the subject.
In today's bulletin:
Will 10% house price jump boost Gordon Brown in leaders' debate?
Argos vulnerable after 11% dive in profits?
John Vincent: Does the 'bigot' comment matter?
Private sector will prop up the job market, says CIPD
Equal pay in Birmingham - a mixed blessing?