Housing market 'in best shape since Eighties'

Mini boom: After countless false dawns, experts agree that price trend is upwards
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Figures from the Halifax Building Society on Monday will confirm that the housing market is in better shape than at any time since the boom years of the late 1980s.

They will show that average house prices have risen by between 3 and 4 per cent over the past year, more than twice the 1.4 per cent increase posted yesterday by a rival survey from the Nationwide Building Society.

The figures chime with anecdotal evidence from house-movers, who are relearning the art of gazumping, from some house-builders, who are enjoying the most buoyant conditions for years, and from City analysts who are busy nudging up their estimates for growth to the end of the decade.

Signs of strength in the housing market came on the same day as stronger than expected consumer credit data for April which one economist described as evidence that Britain was "on the verge of a veritable boom in consumer spending".

Philip Williamson, corporate development director at the Nationwide, sees a rising trend in the housing market after countless false dawns. "Prices have been on an upward trend for almost 12 months now, reflecting the clear improvement in buyer confidence," he said.

Although he cautioned that the recent rate of increase might not be sustained, he believes house prices are likely to rise faster than the rate of inflation this year. Others agree. Rob Thomas, a housing market analyst at the stockbroker UBS, recently increased his growth forecast for the current year from 2 per cent to 5 per cent.

UBS takes an even stronger line in the medium term, predicting average price rises of 6 per cent next year and 9 per cent in 1998. If so, a house worth pounds 100,000 at the end of 1995 will be worth pounds 130,000 by 2000 and the biggest drag on the market in the 1990s, negative equity, will have been eradicated.

These are not boom conditions, but Tony Pidgley, managing director of Berkeley, a highly-regarded house-builder, said yesterday that May was one of the best months he has had since 1988. He added:"On sites where we were selling a couple of houses a week, we are now selling 10. This is a very buoyant market."

London was leading the recovery, but in prestigious waterside developments in Birmingham and Manchester demand was also very strong.

So what makes this year's recovery different from the others that have petered out? The Halifax's Gary Marsh believes that the mini-boom of 1993 died out because of the unexpectedly strong impact of tax increases in 1994 and last year. This time tax rates are falling.

Interest rates remain low and while other negatives remain, such as job insecurity, they are at least not getting any worse. House prices are lower in relation to earnings than at any point since the mid-1960s.

The ratio between mortgage repayments and house prices is even more favourable. Optimists believe that will encourage buyers to take on higher debts, as a multiple of their salaries than previously.

According to Mr Thomas at UBS, there are now two distinct camps. There are those, such as the economist Roger Bootle, who claim that inflation is dead and believe houses are simply places to live once more. Booms are a thing of the past. Others believe that housing is inherently cyclical as well as a good hedge against inflation.

Whoever is right, economists and builders agree that the market remains patchy. Family houses in popular roads served by good schools continue to sell quickly at their asking price. Elsewhere, moving can still be a struggle.

One reason prices are rising so briskly in popular areas, says the Nationwide, is a continuing reluctance of sellers to put their houses on the market unless they are sure of recovering the price they paid for them.

Rising prices and increasing buyer confidence are expected to give a fillip to the volume of houses being bought and sold, although opinion is divided on the subsequent impact that will have. Whatever happens, housing is back as a burning topic of conversation and the desire to know what neighbours achieved for their, frankly inferior, house is as insatiable as ever.