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We are in a bubble says top economics professor

The Momentum UK Team 12 December 2013

We are in the midst of a “housing bubble”, with properties in 10 out of 13 areas in the UK currently overvalued, according to Economics Professor James Mitchell, of Warwick University.

Over-inflated house-prices- a so-called housing bubble- can cause problems for buyers and homeowners as they are sometimes, although not always, characterised by a sharp decline that follows when the bubble “bursts”.

According to Mitchell there is a 93% likelihood that London is currently experiencing a bubble, and Wales follows closely behind with an 83% probability of being in a state of effervescence.

Mitchell put together the analysis using house price and earnings data made available by high street bank Halifax.

Mitchell is currently head of Warwick Business School’s Economic Modelling and Forecasting Group, and he previously spent 12 years as a research fellow at the National Institute of Economic and Social Research.

Mitchell said:

"The results raise the risk, although not the certainty, that house prices will fall.

"...We should all - householders, business people and policymakers alike - be alert to this risk."

The average price of a home in the UK has risen by £10,329 over the last year according to figures released by property website Zoopla.

The Royal Institution for Chartered Surveyors recently asked for the Bank of England to cap yearly house price increases to 5%.

Mark Carney, Bank of England governor, has acknowledged that there is the “potential” for a UK housing market bubble, but added reassurances that lending requirements will be toughened to reduce demand if this becomes a real threat.

Speaking at the Economy Club in New York, Carney said:

"There is a history in the housing market of moving from stall speed to warp speed".

He added:

"We want to avoid that."

Economist Nouriel Roubini recently listed the UK as one of several countries, including Canada, that are showing “signs of frothiness, if not outright bubbles”.

Momentum