London House Prices Surge by an ‘Unsustainable’ 10%
Values in the U.K. capital surged 10.2 percent, or 50,484 pounds ($82,000) from the previous month, to an average 544,232 pounds, the property-website operator said in a report today. Estate agents in inner London reported a “buying frenzy” reducing the available stock to nearly nothing, it said.
“London is a world city where overseas investors see real estate as a safe asset at a time when safe assets are increasingly scarce,” said Miles Shipside, Rightmove director and housing-market analyst.
The surge in London prices partly reflects buyers returning to the market after the summer slowdown, according to Rightmove, adding there is a “long-standing imbalance” between supply and demand. A 15 percent increase in sellers in October followed a 12 percent drop in September.
While the increase in London values in October follows declines of 2.8 percent and 1.5 percent in the previous two months, Rightmove said such a gain is “unsustainable.”
In comparison, there is no risk of a property bubble outside of London, Rightmove said. House prices in England and Wales, excluding London, rose an average 1.4 percent in October from September and were up 0.2 percent from a year earlier.
In two of the 10 regions tracked by Rightmove, prices fell in October from September, while five recorded year-on-year declines, it said.
“The housing market has been sort of frozen for several years and we’re starting to see that thaw,” Bank of England Chief Economist Spencer Dale said in a BBC interview. “A healthy housing market is good for the U.K. economy. We’re aware that it could over time start to overheat and we’re watching that very carefully, but that’s not where it is at the moment.”
Demand for property has been boosted by a government program to help Britons buy a home with a deposit of as little as 5 percent. At the same time, the BOE has said it won’t consider raising its benchmark interest rate from a record-low 0.5 percent at least until unemployment falls to 7 percent from 7.7 percent currently.
BOE officials have said mortgage borrowers should ensure they can still afford repayments when borrowing costs rise. Policy maker Martin Weale said last week he was concerned about recent signs of “buoyancy” in the property market.
“People who are taking on mortgage debt do need to be sure that they can afford to look after it even if interest rates return to what we regard as more normal levels,” Weale said.
According to the Rightmove report, average prices in England and Wales climbed 2.8 percent this month to 252,418 pounds, rebounding from a 1.5 percent decline in September. Values rose 3.8 percent from a year earlier.
Acadametrics said on Oct. 11 that home values increased 0.5 percent in September from August to an average 235,534 pounds. Sales rose 12 percent in the first nine months of the year compared to 2012, with the increase predominantly in the first-time buyer sector, it said.
The U.K. economic recovery has gained momentum and the International Monetary Fund this month raised its growth forecast for the country.
Data this week will show U.K. expansion accelerated to 0.8 percent in the third quarter after 0.7 percent growth in the three months through June, according to the median forecast of 40 economists in a Bloomberg News survey. The Office for National Statistics will publish its first estimate for the quarter on Oct. 25.
BOE policy maker Ben Broadbent said yesterday that officials will only consider a rate increase once the recovery is secure.
“Although interest rates will at some point start to rise, it’s worth remembering quite how low a level we’re starting from,” he said on Sky News television. “I think there’s a fair amount they could go up before borrowers got into great difficulty.”
Elsewhere today, the Bundesbank said that the German economy, Europe’s largest, probably grew at a slower pace in the third quarter after 0.7 percent expansion in the second.
“It seems economic output in Germany increased in the summer quarter of 2013, albeit not to the same extent as in the second quarter,” the Frankfurt-based central bank said in its monthly report. It said growth in the three months through June was partly due to “catch-up effects” after stagnation in the first quarter when an exceptionally cold winter damped output.
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