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City Comment: Don’t believe the slump in house prices

If you believe some pessimists, real estate prices are about to plunge. They have been on the verge of doing this for years.

The problem with this analysis is that it treats houses like any other asset, as if they were simply part of a stock portfolio.

Based on this, many homes are likely overpriced.

The obvious difference with houses as assets is this: you can live in them.

So whatever happens to mortgage costs, consumer confidence and the like, they will remain what people pay first, before they cut elsewhere. (Pets are a close second).

Some see Britain’s obsession with house prices as unhealthy, a curious national affliction that blinds people to other issues.

How can we be stupid enough to feel content just because the bricks we live in are worth more than they were a year ago?

Perhaps this obsession is just a reflection of the fact that Britain is a small place with lots of people, which means living space is still very precious.

The correct answer to the question when should we buy? – has almost always been “yesterday”.

Today Halifax says the average cost of a house in London is £554,718. That’s nearly £45,000 more than a year ago.

For many people, even in London, this means that once again their house was paying more than they were.

Faced with the prospect of higher borrowing costs and lower disposable incomes, house hunters in the capital are turning to deals as soon as possible, rather than delaying.

They think the affordability issue will only get worse, while real house prices are unlikely to fall even if the growth rate slows.

The housing market could cool down. It will still be relatively warm.

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