THE property market is gathering momentum, with house prices rising twice as fast as they did last year.
The asking price of the average house is rising by about £150 a day, pricing many first-time buyers out of the market and fuelling concerns that the housing market bubble could burst.
If the current surge in house prices continues, property price inflation could exceed 20 per cent this year, more than twice the 9.6 per cent recorded in 2003.
The latest figures, from the property website Rightmove, show that asking prices rose by 8 per cent in the past four months compared with 3.8 per cent in the same period last year.
The average home now carries a price tag of nearly £185,000 after a rise of just above 14 per cent in the past 12 months.
Despite higher interest rates and the threat of further rate rises, the annual rate of house-price inflation has been steadily building up steam since December.
Rightmove’s index, which is based on asking prices rather than the final sum buyers pay, shows that property is booming throughout England and Wales. Even in London and the South East, where the market was sluggish during most of last year, prices have risen by 1 per cent and 1.9 per cent respectively in the past month. The biggest surge was seen in Yorkshire & Humberside, where asking prices have increased by nearly 6 per cent.
A separate but equally bullish report from the National Association of Estate Agents (NAEA) reveals that buyers are now paying almost 98 per cent of a property’s asking price compared with an average of less than 96 per cent throughout last year.
Property prices are being pushed up by a shortage of homes for sale. So far, Easter and the spring weather have failed to prompt the flood of new properties coming on to the market that many estate agents expected.
Rightmove figures show that supply still lags behind demand, with the number of homes put up for sale averaging 110,000 a month compared with sales of 125,000.
But steep price rises mean fewer first-time buyers are able to afford homes. According to the NAEA, the percentage of sales to first-time buyers dropped to 16 per cent in March from a high of 20 per cent in February.
The gathering strength of the housing market will rekindle the debate over whether the property market is set to crash.
Tony Dye, the fund manager known as “Dr Doom” for his pessimistic predictions, recently forecast that house prices could fall by as much as 30 per cent during the next five years.
Mr Dye’s warnings came after the Halifax reported annual house price inflation of 18.5 per cent earlier this month, and follow similar predictions by other economists. Many believe that the market is due for a correction as the price of property is high relative to average earnings.
However, estate agents reject these arguments as unrealistic. Melfyn Williams, the president of the NAEA, said: “Recent reports of an imminent crash in the housing market have as much foundation as a house built on sand. These commentators are totally detached from the reality on the ground.”
Miles Shipside, of Rightmove, argues that prices are likely to hold as long as there is a shortage of homes.
“While house price rises should cool off as interest rates rise and homes become more expensive, there’s no likelihood of a collapse in prices,” he said.
“We all need somewhere to live and there aren’t enough homes to go round.”