Housing crash almost over

The worst of the housing market crash is now over, David Miles, the Bank of England’s new resident expert on the mortgage and property market, claimed.

David Miles

David Miles says neither the housing market nor the UK economy could expect more than “anaemic” growth in the coming years.

Professor Miles, who wrote a Treasury report on mortgages five years ago, said that both the housing market and the broader economy had now endured the worst of the slump, and could recover soon.

His comments come amid growing signs that although the economy remains weak, the signs of recovery are now becoming increasingly convincing. According to Nationwide, house prices rose in June for the third time in four months.

Professor Miles, who was testifying at the Treasury Select Committee, said: “Expectations are crucial in the housing market and they look a bit better now than a few months ago. My hunch is that we have seen most of the overall aggregate house price falls.”

However, he warned that neither the housing market nor the UK economy could expect more than “anaemic” growth in the coming years due to the severity of the financial crisis that preceded.

“It may be the case that we get what looks like a very sharp rebound over the next few quarters: one might interpret that as a V-shape but that doesn’t really tell you an awful lot about what the likely path of GDP growth will be,” he said. “The prospect of a rapid return to growth doesn’t seem a highly probable outcome. But there are reasons for thinking the period of the most rapid declines in output are behind us.”

The comments coincided with a speech by fellow MPC member Tim Besley, who said it was still too early to tell whether the Bank’s decisions to slash interest rates to just above zero and pump £125bn into the economy through quantitative easing were working.

Prof Besley, who is standing down from the MPC in the autumn, said that the MPC “will need at some point to tighten policy through… raising nominal interest rates and ‘quantitative tightening,’ to make clear that upside risks to inflation can be headed off and to maintain a credible policy reaction function.”

But he added that it remains “difficult” to assess the success or otherwise of the operation.

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