Photo of Ian Preston By Ian Preston

Are Rising Prices a Good Thing?

Posted 25/07/2013

The recent first estimate of GDP of 0.6% is encouraging.

I am told that it was in line with expectations but it reassures me that the excellent activity we have seen in the housing market over the Spring and Summer of 2013 is not just being fuelled by the governments Help to Buy scheme.

It may surprise some of you but I certainly am not a major supporter of rapidly growing house prices. On a micro level we want to get as much as possible for every seller to help them achieve their goals.

A lot of Preston Baker clients have been waiting a number of years for prices and the economy to improve before moving. This has created pent up demand in the market with families often living in smaller houses longer than they might otherwise have done. Let’s take an example:

Today’s prices

3 bed semi detached house – Value £150,000 / Mortgage £100,000

4 bed detached house - £250,000 / Mortgage £200,000

With 10% house price growth

3 bed semi detached house – Value £165,000 / Mortgage £100,000

4 bed detached house – Value £275,000 / Mortgage £210,000

So as you can see, whilst your home may be worth more and you may feel a bit wealthier, you will end up with more debt in an environment of growing prices.

So what does this mean for buyers and sellers?

If you are thinking about moving I would encourage you to do it sooner rather than later because it is clear that prices will continue to grow at a reasonable pace given what we are seeing on the ground. My hope is that this inflation will be modest until average earnings growth returns to above inflation levels.

In the three months to April average earnings growth was only 0.9%. Inflation is now running close to 3% in the wider economy and this is being mirrored now in house prices. If earnings don’t improve then the best hope for the sustainability of the housing market is a period of stability for prices.

If you are moving upmarket or are a first time buyer – call your local Preston Baker team to get on with it!

Tagged Market Insights; Posted 6 years ago

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