Bubble, bubble, housing trouble..........

Our press reports that the US  economy is getting better; if we had 2%+ growth we would call it a boom. And I note that house prices and construction are rising.

 

We British are bonkers about house prices. We still think of houses as a store of wealth, which they rarely are. Usually the interest charges and other costs involved in house purchase  negate most of the rise in capital value. (But by the same token, we have much hand-wringing about private debt, envisaging maxed-out credit cards, whereas most of it is mortgage debt which in itself is more in the nature of deferred rent).

 

House prices are rising – but mainly in London which is an international market, and the South-east.

 

The small but beautifully formed George Osborne is congratulating himself on the effectiveness of his ‘help for borrowers’ stunt. A blatant piece of electioneering that ignores the simple economics.

 

If you make it easy and cheap to borrow, you create a housing bubble, and we all know where this led in Spain and Ireland.

 

Unless you increase supply as well as demand (which is not happening), price rises make life even more difficult for first-time buyers.

 

Outside the South-east the market is in Catch-22. People can’t afford to buy because prices are too high. And thy can’t afford to lower the prices because they are over-mortgaged. Result; stagnation.

 

Ignoring the laws of supply and demand will only end in tears.