The housing market continues to astonish. A recent survey of surveyors showed sales volumes and price balances strengthening. Over the last year, average house prices have risen by 12pc. This follows nine years of increasing prices. Can the market continue to be this strong or is there trouble ahead? One key metric that is flashing red is the ratio of average house prices to average earnings (HPE). It currently stands at 7.7, having recently surpassed the previous peak of 7.5, registered in 2007, just before the global financial crash. This crisis was followed by a fall in average house prices of 18pc. The long-term average value for the HPE, going back to 1970, is 5.1. As is usually the case at the peak of the market, valuations currently look particularly stretched in London and the South East . Although the HPE ratio is a useful guide to the underlying valuation of the housing market, it has proved pretty useless as a short-term forecasting tool. This is partly because various factors, including population growth, a natural tendency for the demand for housing to grow as people get richer and, more recently, an increased demand for residential space because of the Covid… Read full this story
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