e afraid, be very afraid..? The Governor of the Bank of England has joined those warning over the property market boom. But did he tell us anything we didn't already know? By Mike Verdin
We live in an era of 24-hour news, of media receivers sited in briefcase and pocket as well as opposite the sofa and on the bedside table.
Yet despite such constant availability of fresh information, a statement of the obvious has a mystifying ability to steal the agenda.
Thus, a statement last night, that after a rise of 20 per cent in the past year the chances of a house price crash had increased and that house-hunters should consider the possibility of interest rate rises, has prompted uproar.
It was plain months ago that, after a long period of house prices growing more quickly than wages, the chances of a property downturn had been raised. Even major lenders, such as Nationwide and Halifax, who have an interest in the continued boom, have warned of a slowdown.
As for rising interest rates, if four increases in borrowing costs since November had not communicated the message, why should a couple of comments to a business dinner in Glasgow?
The answer is the identity of the man who made them, Mervyn King, the Governor of the Bank of England and, as such, the central banker with both hands on the levers of monetary policy.
When in April Tony Dye, a fund manager nick-named "Dr Doom" for foreseeing the end of the dot.com boom, forecast that property prices could fall by 20 per cent, markets listened.
When Mr King last night made more cautious observations, investors clamoured to sell shares in housebuilders, with the likes of Bellway shedding 4 per cent this morning, and mortgage banks, such as Northern Rock, also losing value.
All Mr King said was a statement of the obvious: "After the hectic pace of price rises over the past year, it is clear that the chances of falls in house prices are greater than they were."
As John Butler, an economist at HSBC, explained: "It is the nearest a central bank comes to saying the housing market is a bubble."
The bursting of the dot.com bubble, and collapse of the last property boom in the late 1980s, shows what impact such cataclysms can have.
So should homeowners be afraid?
They can take comfort in at least three points. First there is the failure in the supply of new homes to match demand raised by the increasing number of households. The rate of housebuilding, despite the Government taking steps to improve, has fallen this year, although it remains above the 2001 figure, which was the lowest since the 1940s.
The Royal Institution of Chartered Surveyors, in a report this morning highlighting the first fall in new buyers for six months, also noted that the number of unsold properties on estate agents' books was at its lowest level since 1979. "The number of houses for sale remains weak, putting upward pressure on prices," the institution said.
Without a surge in the numbers of properties for sale, the price of homes is unlikely to fall considerably.
The second point of comfort for homeowners is that Bank of England forecasts over the property market have often proved wrong. A prediction, made last year that price growth would fall to zero this year appears increasingly unlikely.
And the third point is that economic bubbles are identifiable only in retrospect. Mr Dye was predicting the dot.com boom's demise for years before its 2000 occurrence. Maybe he was bound to be right, eventually. Others were not so fortunate in their predictions: Jeffrey Vinik, the head of Fidelity's huge Magellan fund, warned of stock market "euphoria" in 1995 only to see the tech-weighted Nasdaq index soar by 45 per cent in 17 months. He resigned in 1996.
Certainly, houses appear expensive, but demographic factors are at work as well as mere speculation.
Mr King also noted in last night's speech the changing nature of the UK economy. A century ago, the ten largest UK businesses, by stock market value, were all railway companies. The UK built more ships than the rest of the world combined.
Divorce rates, the ageing population, immigration and two-income families have transformed to the fundamentals of the property market. Such changes are irreversible, as are the majority of the property price gains of the last few years.
