History tells us that the housing market cycle begins in London. Last year, while London and the South East saw only modest prices rises, areas such as the North East enjoyed a boom – classic final throws of a bull run. Now, it’s gone the other way. Is it possible, that this time, we have missed the downturn altogether, and that we really are at the beginning of a new boom? Is it really possible that the great house price-crash of the second half of this decade, will be consigned to the dustbin for false economic projections?

The latest data from Hometrack would suggest this is the case. House prices rose 0.6 percent in July, says Hometrack, taking the annual rate up to 3.2 percent, that’s the highest rate of annual increase for 18 months.

Examine the data more closely, and you see the signs of a new cycle written all over it. Prices in London soared by 1 percent, but in the East Midlands prices were static, with the area recording zero inflation, while Yorkshire and Humberside saw a modest 0.1 percent rise.

house prices

Richard Donnell, director of research at Hometrack said “‘The survey shows there is strong market activity – such as in London – but in reality across two thirds of the country house prices remain unchanged.”

With the well publicised shortage of new houses, and with immigration, theories abound about how house prices will rocket. Recently, for example, a study by Oxford Economic Forecasting said that the average house prices are set to soar from £195,000 in  2006 to £286,500 in 2011.

The current evidence might appear to support that view, but sometimes appearances can be deceptive. And we suspect, we are seeing a good example of this.

Thanks to low inflation, your typical 25 year mortgage is much more expensive, for any given rate of interest, than we have previously seen in modern times

It’s more expensive over 25 years, but, thanks to low rates, often cheaper in the short term.

And when things cost more over a long period of time, it takes longer to feel the full ramifications. But feel them we will, – eventually.

And peer below the headlines, even the Hometrack report was not all bullish projections. The data also revealed that July saw a 0.9 percent decline in the volume of new buyers registering with agents. It was the first decline seen this year.

Low inflation has distorted the market. The lower rates that come with low inflation promote higher house prices in the short turn. Lower inflation in the long term makes mortgages less affordable. But because the phenomenon of low inflation and low rates is still relatively new, the new pattern is still only emerging.

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