The house price bubbles of 2015 continue to rage

One of the features of the era of extraordinary monetary policy and Quantitative Easing in which we now live is that there is considerable doubt about the results. Regular readers will know that I have been amongst the doubters or in Dune terms heretics on this issue since 2010. The latest theoretical move is that is reduces the velocity of money in a brake on itself. However one clear feature of the era has been the boom in asset prices with many equity markets rising but also house prices getting an upwards push too. It is the latter that I intend to look at today with the theme song of West Ham United playing in the back ground.

I’m forever blowing bubbles
Pretty bubbles in the air
They fly so high, nearly reach the sky
Then like my dreams they fade and die

Perhaps some central bankers might like it as a ringtone.

New Zealand

If we go south and skip the land down under we can in a nod to the upcoming Rugby World Cup take a look at New Zealand and Auckland in particular. From the Reserve Bank of New Zealand or RBNZ.

At present, house price inflation is much higher in Auckland than in the rest of the country, reflecting stronger population pressures and constrained housing supply (figure 4.10).House price inflation is beginning to increase in some other areas, such as Hamilton and Tauranga.

The chart mentioned shows that annual house price inflation in Auckland is at 25%. Interestingly considering what is going on in other parts of the world there has been considerable migration and the RBNZ blames that for the price rises conveniently skipping over this bit.

Since the beginning of the year, two-year fixed mortgage rates have declined by more than 1 percentage point, with 0.7 percentage points of this fall occurring since the June Statement.

Why are they falling? Well another part of last night’s statement gave us a clue.

The Reserve Bank today reduced the Official Cash Rate (OCR) by 25 basis points to 2.75 percent

There has been a series of interest-rate cuts from the RBNZ in 2015 and in a warning for both the US Federal Reserve and the Bank of England they follow rises in 2014. Officially the cavalry is on its way.

Policy measures announced in Budget 2015 and restrictions on high loan-to-value ratio lending to investors in Auckland are expected to help dampen demand for existing houses.

However in reality I think that the outlook for first time buyers in Auckland will be all black for a while yet as macroprudential policies were abandoned in the past and that abandonment was not due to their success!

You could say that the Kiwis in Auckland went a long way to create a mirror image of the house price boom and bubble of London.


The Riksbank in Sweden has become a familiar theme on here as it mimics Agent Smith from the Matrix series of films crying “More! More!”. In specific terms that represents an interest-rate of -0.35% and an ever-increasing volume of Quantitative Easing as I discussed back on the 4th of August. This has spilled over into the housing market. From Sweden Statistics.

Increasing prices were reported in 21 out of 21 counties between the two last three-month periods….Real estate prices for one- or two-dwelling buildings increased by 4 percent during the last three-month period June – August 2015, compared to the previous period March – May 2015.

That is motoring by anybody standards and in Fleetwood Mac terms is “everywhere” with some more bubbilicious than others.

The largest increase was in Gotland County at 11 percent, followed by Västernorrland at 8 percent.

If we step back for a little more perspective we see this.

Prices increased by almost 10 percent on an annual basis during the last three-month period June – August 2015, compared to the same period last year…..Increasing prices were reported in all counties on a yearly basis.

For those of you wondering what this means in actual prices.

The average price for one- or two-dwelling buildings during the period June – August 2015 was more than SEK 2.5 million.

Actually it is 2,566,000 Swedish Krona.

Again macroprudential policy is in play so that the authorities can claim that they are “doing something”. However as we note that on the same standards as the UK the Swedish consumer inflation is 0.6%, so house prices are increasing at a rate some 9.4% higher than that.

The UK

The UK housing market turned just after the Bank of England pushed the accelerator with its Funding for (Mortgage) Lending Scheme in July 2012. Today the Halifax building society data suggests that the boom is ongoing.

House prices in the latest three months (June-August) were 3.0% higher than in the preceding three months.

That is not far off that of Sweden! So let us look at the annual numbers.

Prices in the three months to August were 9.0% higher than in the same three months a year earlier.

These rise came with a fair degree of bombast.

The underlying pace of house price growth is strong. The shortage of secondhand properties for sale on the market is resulting in upward pressure on house prices. At the same time, economic recovery, real earnings growth and very low mortgage rates are supporting housing demand. Strengthening demand and highly constrained supply are likely to mean that house price growth continues to be robust in the short-term.

The average price according to the Halifax was £204,674. Or in Swedish terms some 2.64 million Krona which seems a rather similar number doesn’t it? Of course there are plenty of caveats in such a comparison but it is intriguing.

In terms of comparing to earnings then the Halifax calculates that the average house price to earnings ratio has risen to 5.26. That is in spite of the fact that the earnings figure of male full-time employees is upwardly biased compared to the overall population.

There are various surveys on the UK housing market each with their own flaws but I note that the Halifax data has received some backing form the Royal Institute of Chartered Surveyors this morning.

The RICS price indicator reached a 15-month high in August, with a net balance of 53% more respondents reporting price-rises, and firm-growth being seen across all areas of the UK.

Further analysis, using Office for National Statistics’ data as the comparator, indicates that prices now look likely to rise in the region of 6% over the course of 2015, compared with 3% predicted at the beginning of the year.

Also one area where conditions have been icy cold seems to be on the move a bit like the football team.

The strongest price growth is forecast in Northern Ireland, where prices are now anticipated to rise by 11% throughout 2015.

A Space Oddity

I have not forgotten that just down the road from the area that uses the face of David Bowie for its currency ( the £10 note)  something unusual may be happening. It was only yesterday that I reported troubles at the mega development in Nine Elms which we wait to see is prescient or a special case.

Another way of looking at London as a special case can be found here. From the London Evening Standard.

Deloitte is to introduce a bargaining tool to attract young talent to join the company — help to move into the former athletes’ village in east London.


One area where central banking toolkits are not “maxxed out” is in their ability to raise house prices as today’s data from 3 parts of the world indicates. We see past moves from the Bank of England still having an effect and current ones from the Riksbank of Sweden. We also see the RBNZ rushing to catch up on the lower interest-rate party on the other side of the globe.

However whilst central bankers love to trumpet wealth effects their trumpeting is of nowhere near the skill of whoever transformed the song Cheerleader. But the lyrics do apply to central banking attitudes to house prices.

Oh, I think that I’ve found myself a cheerleader
She is always right there when I need her
Oh, I think that I’ve found myself a cheerleader
She is always right there when I need her.

The problem is that the “wealth effects” trumpeted by central bankers look awfully like inflation to first time buyers as we see another front in the war of the generations.


16 thoughts on “The house price bubbles of 2015 continue to rage

  1. We’ve heard criticism of banksters for betting the ranch and being bailed out by their political subordinates, but it now seems that in order to continue that bailout, Carney, proving himself to be chief bankster, has himself bet the ranch.
    He’s bet it on the house price bubble, and if the market ever tries to return to sensible levels, the whole rotten edifice collapses.

    • Without printing via land there is no “growth” in the UK. The UK itself is getting smaller as we sell off land abroad from under our kids to fund boomer living standards.

      • Boomers get a lot of criticism, but B-t-L didn’t exist when Boomers were in the buying market. Mortgages were only available to buy your own home, and available ONLY from mutual building societies. In 1970’s only 4% of the market was not building societies, in the 1980’s this shot up to a third of the market.
        It was dogmatic deregulation of the banks in the 1980’s which set us on this present destructive path, as it has set us on so many others.

        • Sure BTL is doing a lot of harm but they numerous enough to be the target of electoral bribes. People should have voted against free money a long time ago, not said thanks and asked for more.

        • ah , the equation is found !

          this is why we need more people in the UK , we need to prop up housing prices and so that means we’re all more wealthy!

          Ta Dah!


        • benfitzg:
          I am a homeowner born at the very tail end of boomer generation, and I would welcome more realistic house prices. Further, I have never made a penny from property, as I view housing more as a commodity than an asset.
          Thirdly, it was political dogma which caused property prices to rocket, no generation is greedier than any other.
          Lastly, no-one I know has ever turned down “free money”, but we boomers all have our houses, and protection of prices interests us only insofar as bequests to children, those who have them, and mortgage equity, which, in large part, goes to help those children gain their own foot on the property ladder.
          You may blame the boomers, but there are at least two other generations out there, in the housing market.

  2. Hello Shaun,

    “The problem is that the “wealth effects” trumpeted by central bankers look awfully like inflation to first time buyers ”

    sorry actually thats any normal I wanna buy a HOME buyer …….

    the reason is simple , same as today’s interest rate freeze , the Banks are bust . If people handed in their keys like the 90’s then they toast!

    nothing has changed in that respect.

    The BANKERS are keeping house prices high and the HMG is complicite in that we build a few more housed but import hudreds of thousands of more people …..

    its a great plan !


    • Hi Forbin

      Anybody buying house equity sees it as inflation and anybody selling house equity sees it as a wealth gain and perhaps the fruits of their wisdom! The interesting thing was the way that Auckland was so similar to London. Immigrants boost demand and not enough new houses are built when mortgage rates are low. When I was a child I had friends who were Kiwis who said that there was plenty of land and space but perhaps that space is not where everyone wants to be..

      The irony of the current immigration debate in the UK is that neither of the main political parties that have been in power have been able to exert much control on it anyway. New Labour did not really want to control it, in fact often the reverse and the coalition got nowhere near the “tens of thousands” of political rhetoric.

  3. “The house price bubbles of 2015 continue to rage” – they have to, because without them the emperor’s clothes (the banks balance sheets stuffed with mortgages on the “asset” side) are seen for what they are – NON – EXISTENT!

    • Hi Noo2

      Yes the very same banks which are often bust even with all the subsidies. It may be interesting to see if they can cope with higher interest-rates even if the increase (0.25%) is marginal. I note that the FT has done a bit of a u-turn because interest-rates were cut to bail out the banks and apparently now higher interest-rates benefit them.

      Added to this will be the impact of the US Fed’s own balance sheet which is stuffed to the gills with mortgage-backed securities.

  4. Hi Shaun,
    Down here in NZ the pundits feel the RBNZ could well reduce the OCR down to 2.5%; some even suggest a record low of 2.0% is possible. Yesterday the PM opined that mortgage rates could soon “begin with a 3”. (I think I heard that correctly).
    So the RBNZ Govnr. still has some ammunition left. No talk of being maxed out here.

    Many kiwis regard property has the only safe way to make money or invest for retirement. After all many have been financially scarred by investing in finance houses that have gone bust in recent times; and they still recall the ’87 stock market crash as though it was yesterday (a bit like the sinking of the Rainbow Warrior). So property (especially Auckland property) is a sure fire money making scheme that can’t go wrong; and there’s no CGT in NZ…. even though there are some parts of the country where property values are lower today than 10 years ago. Life’s good in paradise- for some.

    • Hi Eric

      Yes the RBNZ was keen to emphasise that more of the same is on its way.

      “At this stage, some further easing in the OCR seems likely.
      This will depend on the emerging flow of economic data.”

      So far in 2015 promises of interest-rate cuts have been a lot more concrete that promises of interest-rate rises. It was only a month or so ago it looked like 2 members of the Bank of England would vote for a rise but now the single individual must feel a little lonely.

      “Many kiwis regard property has the only safe way to make money or invest for retirement.”

      Just like the UK really as is the fact that some places have lower property prices (Northern Ireland)…

      Is there no CGT on housing or is it like the UK where the first residential house is CGT free?

  5. Hi Shaun,

    I have not posted for a while however your blog in compulsory reading each morning.
    They tried to tell us we had the “rock star economy” however I think history will show that it is was a fleeting moment mainly based on Chinese demand for commodities which was unsustainable.
    Our banks here are like yours and lend for the purchase of houses far in excess of any other sector.
    On more important matters I wish you and your mob all the best for the Rugby World Cup. I hope you do not turn on the same hospitality that we turned on for your boys in Queenstown when they where here for the last RWC.
    Keep up the good work.

    • Hi Bones

      Thanks for the goodwill and I am looking forwards to the Rugby World Cup too! Most of the coverage so far has been on the Northern Hemisphere but that will change soon. As for England we have some great players but so far have managed to be less than the sum of our parts…

      Oh and as it is Battle of Britain day here let me put in writing a thank you to the Kiwi pilots from back then.

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