Are house prices in a bubble that's about to burst?

As strong as the property market is right now, experts are worried that it won't last.

Mortgage broker @Coreco sums it up in two words: "Reality check".

Here's what you need to know (a #thread ) https://www.telegraph.co.uk/property/house-prices/house-price-bubble-burst/

First up, a definition.

A bubble occurs when asset values are rising at an unsustainable level despite all the fundamentals suggesting they shouldn't be, according to @richard_donnell of @zoopla…

House prices usually rise with wage growth, yet their rapid inflation last year was completely out of kilter with earnings, which remained flat due to Covid.

As a result, the property price to earnings ratio (a measure of affordability) jumped from 9.5 in 2019 to 10 in 2020

Why does that matter?

A score of 10 is the highest the ratio has been since the housing bubble of 2007…

Drawing parallels may be misleading, however, as the large amounts of free flowing credit that led to the last property crash are no longer available today.

"Bubbles happen when credit is really easy to come by," explains @richard_donnell

Another thing the Government did was to limit the percentage of banks' funds that could be loaned out to buyers with small deposits, as they're higher risk

That has stopped people borrowing too much and therefore pushing up prices more…

Price growth indices only reflect the values of homes that sold in a given year, so last year's high level of activity translated into higher prices.

As @richard_donnell explains: "It was a one-off"

Prices could still fall, just not as severely as feared.

@CapEconomics revised its house price forecasts made last year, from a fall of 5% or more in 2021 to 4%.

This is far less dramatic than after the housing bubble of 2007, when prices dropped by 16% the following year…

The consultant expects prices to fall due to rising unemployment (), falling demand after the stamp duty holiday, and a rise in forced sales once the furlough scheme and mortgage holidays end.

"However, the market won't suffer the immediate shock it did in 2008," it said…

Lack of supply should also help to prop up prices, but values could plunge in the long-term if interest rates start to rise.

Higher rates mean people can borrow less, which makes higher house prices unsustainable…

What else do you need to know?

Read @MariannaHunt5's in-depth analysis here: https://www.telegraph.co.uk/property/house-prices/house-price-bubble-burst/