Despite the hysterical reaction from some quarters, the reality is that the property market is not so much roaring upwards as slowly clawing its way back from a pronounced slump five years ago. Average house prices are back to where they were before the credit crunch struck - and that's only because of the boom in London. In fact, house prices in the third quarter of 2013 were still below their 2007 peak levels in 11 out of 13 UK regions. Our view is that this means there is still plenty of opportunity to pick up reasonably priced, and therefore high yielding, buy-to-let property in some of the UK's more prosperous regional hubs.
Some will argue, of course, that UK houses were overvalued in the first place - relative to household earnings that's hard to disagree with, but there are equally strong economic arguments that household finances are in as good a shape as they have been for some time. Debt to income levels are steadily falling, and household wealth has risen as asset values have increased. Confidence is returning as a result, although an elevated savings rate suggests optimism is still measured.
The other factor to note is that the UK isn't exactly awash with houses or, indeed, land that can be easily brought through the planning process to build them on. In fact, it's been suggested that we can expect a shortage of around a million homes within a decade as the number of households continues to rise. Housing construction is running at around 100,000 new homes a year, well below the levels seen at the peak in 2007 and, more importantly, less than half of the number required to offset the predicted housing shortfall. Housebuilders have unsurprisingly rocketed - they're up 63 per cent on average over the last 12 months, and we still think the sub-sector is attractive.
We don't believe, either, that the government's schemes to boost the housing market will stoke a bubble, either. Mortgage approvals are rising, but remain well below peak levels. Help To Buy is buoying the market, but the vast majority of transactions fall outside of the scheme. Besides which, banks are much more disciplined than they were in the noughties, and far more fussy about who they lend to these days.
New unemployment data also suggests that the Bank of England's 7 per cent target could be hit by the end of 2014, which could mean interest rate rises come sooner than expected. That could take the froth out of the housing market if it ramps ahead next year, but, from the current low rates, won't stop the recovery dead, either. All in all, the case for making a home for property in your portfolio remains on solid foundations.
