Bubble problems are brewing in the real estate market Business

“Compared to history, high LTV loans are minimal, so even with a sharp correction in house prices, bank losses will be small,” says Investec banking analyst Ian Gordon. But he argues that the government is unlikely to achieve its ambitions of building 300,000 homes a year by the middle of the decade, unemployment is expected to be much lower than feared at the start of the pandemic. , which means fewer distressed sellers. “In an environment of ‘low’ interest rates, which I consider permanent, the ability to pay off higher mortgage debt is arguably providing some support for the housing market,” he adds.

Another factor preventing the impending bursting of a bubble is the absence of a building frenzy. Everett-Allen says, “We didn’t experience the supply boom that we saw in a number of markets until 2008. Spain and Ireland, for example, were seeing a lot of new properties coming in. on the market. “

David Miles, housing economist and other former head of the bank’s rate setting, says the recent price spike must also be seen in the broader context of falling real interest rates since the mid-1990s. 1980s, because the yields or yields of an inflation-resistant government debt fell by almost six percentage points. This shift inflates the prices of assets like housing, which have doubled in real terms since 1985. “The big picture of why house prices have risen so much in so many countries over quite a long time now has as relatively simple answer, which is that real interest rates are super low.

But Miles adds that the UK property market is “more sensitive” to a shift in the path of interest rates, while his former colleague at MPC Posen – now chairman of the Washington-based Peterson Institute for International Economics – adds that he is too early to erase the fears of the bubbles.

More about this article: Read More
This notice was published: 2021-07-24 04:00:00

Leave a Reply

Your email address will not be published. Required fields are marked *