Top of the market alert! A garage in Camberwell, London, has just been sold for £550,000, three times its guide price.
It seems in every property boom there is a transaction that makes you stand up and take notice. In the late 1980s it was a airing cupboard in Chelsea selling for £50,000. At the time of the great boom in the 2000s it was beach huts on the south coast selling for the price of a nice family semi elsewhere. Now we have the Camberwell garage.
But this doesn’t feel to me like a top of the housing market across the UK. Transactions are still historically low, about two thirds their normal level and the so-called boom barely touches much of the country. Top of the market in London though? It certainly is beginning to feel like it. Someone I know for instance is selling their studio flat in a good but not absolute prime part of London and with the money they will make they plan to buy a four-bedroom detached house in Hastings. So a single room in London equates to a four bed detached by the sea.
I worked out the comparative price per square yard. By my estimate for every square yard in London – non prime – you can buy between six and ten outside the capital in the south of the country and the further north and west you move the multiples increase. There has always been a property price gap but it has never been greater, not even when airing cupboards were being sold in Chelsea.
Where will it all end? Well there are a couple of different scenarios looking back at history. Firstly prices keep on expanding until there is an economic shock, such as a major international crisis causing a crippling rise in commodity prices, a sovereign debt or banking crisis, This brought to an end the last price boom. Secondly personal debt expands yet again until eventually sentiment shifts, the economy gradually worsens, throw in some inflation and we end up with a sell-off of the asset that the debt is secured against, a classic bubble bursting, which is what happened in the late 1980s crash.
There are some ways that either of these can be avoided and I hope Mark Carney, the Governor of the Bank of England, is taking notice. Cautious husbandry of the mortgage market is essential. I’d suggest that the historic sign of an overheating market, around 100,000 sales a month, is too much; 80,000 should be the point the brakes are applied. Secondly, and Mr Carney can’t do anything about this, we desperately need more supply of housing. Building 100,000 houses a year isn’t enough; we need double that. If more supply is brought on stream then price inflation should be capped. We are not quite top of the market yet but it is approaching at a speed few thought possible.
Debt shops go pop
There has been a lot of noise this week about how wages are finally rising faster than inflation – that is if you relate the official figure of inflation with real everyday prices, and I don’t. I still hold the older retail price index as more relevant to you and me in the real world. But undoubtedly the economy feels much better; the job market is loosening up with opportunities available again and partly due to the limited housing boom described above many feel wealthier as their key asset, their home, is starting to rise in value.
A purely anecdotal indication of better times for me has been the closing down of some of the parasitic high street money-lending shops. I have come across half a dozen instances in recent weeks where these gaudy places have been closed down. They had spread as the economy worsened. They were like pop-up debt shops. Now they are, it seems, retrenching, the only problem is with what do you fill the gaps they leave on the high street?
Time to fix your energy?
To date it has been an unseasonably warm April so the last thing you are probably thinking about is the cost of domestic energy. However, the worsening crisis in the Ukraine and the potential knock-on effect this could have on energy bills should be a concern. Fortunately, it seems that there are some new fixed-energy tariffs coming on stream now which should protect you from any nasty bill shocks. Price-comparison site uSwitch has even gone as far as suggesting there is now a price war on in the sector. it can often be best to look for a deal when demand is at its lowest – when the sun is shining. Come the autumn many of these tempting deals may disappear. If you aren’t fixed it may be prudent, bearing in mind the shaky international situation, to explore the possibility.