Chris Willey talks about the housing market

By the end of September 2013 residential property transactions for the year exceeded the one million mark for the first time in just under five years. They do, however, now remain well below the 1.6 million seen prior to the credit crunch. With sentiment improving among prospective buyers, the Nationwide house price index suggests that the average UK house price index rose considerably during 2013. The housing market followed the trajectory of the wider economy through 2013, gaining momentum as the year progressed. The average monthly increase in house prices rose from 0.4% in the first half of the year to 1% in the second half of 2013. Overall, prices increased by 8.4% in 2013, though they remain around 5% below the all-time highs recorded in late 2007.

A housing bubble looks unlikely

Research by one leading national estate agency suggests the average UK house price could rise by 25% over the next five years, largely on the back of growth in average earnings. However, given the prospect that mortgage interest rates will rise to around 5% by 2018, mortgage affordability would be eroded, much as it has in previous cycles. To enter a housing bubble they say we need to see a combination of more exuberant five year house price growth of perhaps 35%-40% and mortgage rates rising to 6.5%-7%.

More property needed

Part of the reason for the acceleration in house price growth is that the supply side of the market has not kept pace with the upturn in demand, even though buyer numbers remain subdued. For example, in the third quarter 2013 the number of housing transactions in England was around 25% below pre-crisis levels, while the number of new homes built was around 45% lower.

Moreover, even in the pre-crisis period, the pace of construction was below that required to keep pace with the increase in the number of households, adding further weight to concerns that the supply side of the market remained constrained.

Overall there appears to be a fairly level playing field for buyers and sellers in 2014. If more property becomes available and interest rates remain low the picture looks rosier for us all.