View from City Road: Homes are still not hot property

John Wriglesworth's analysis of the housing market is not necessarily spot-on, but it is usually an intelligent summary of the principal factors affecting the market. In yesterday's offering from UBS, he has become a little less bullish about prospects. He doubts that there really is a groundswell of pent-up demand from first-time buyers.

These people are the key to the market because if they do not buy starter homes today then yesterday's first-time buyers cannot trade up to larger homes. Chains do not begin and therefore housing transactions stay low. That in turn adds a depressing influence to the economy, because people spend most freely on furniture and other goods when they move house.

Mr Wriglesworth now argues that there may be fewer people waiting to jump on the housing ladder than the super-bulls want to believe; a lot of people in today's first-time buyer age group actually bought flats and houses earlier than they would normally have done, because they were sucked into the late-Eighties boom. Between 1982 and 1988, the proportion of 18 to 24-year-olds buying their first home grew by 103 per cent.

There are still 1.2 million households owing a debt higher than the value of their home. Until their balance sheets are repaired, they will also find it difficult to trade up to bigger homes. So the housing market, although rising, is still convalescent. That is a futher reason, along with the coming tax cuts and low inflation, for another cut in interest rates.