Housing Bubble fears – genuine or an overreaction?

This is what the Bank of England had to say today.

They do not seem concerned!

Since the spring and after several years of stasis,activity in the housing market had been picking up
and, on the basis of recent indicators, gaining momentum. Although still well below pre-crisis norms, monthly mortgage approvals
had increased by almost a third over the past year. And, according to the average of the main lenders’ indices, nominal house prices in July stood around 4%
higher than a year earlier and so had begun rising in real terms for the first time since mid - 2010
.
In a confidential preview of the survey, the RICS current house price balance had risen to a level last seen at the end of 2009.
There had also been signs of an easing in conditions in the commercial property
market.

Increased housing market activity had the potential to support dwellings investment and spending on associated services, thereby boosting growth overall. And some rise in prices might provide a modest fillip to consumer spending and investment if, for example, the increase in collateral values helped to relax households’ and small businesses’ credit constraints. Nevertheless, the Committee noted that property market developments would become more of a concern if a period of rapid real house price increases appeared in prospect. The Committee noted the fact that the Financial Policy Committee and the Prudential Regulation Authority now had a range of instruments they could deploy to mitigate this.

If the question is "Is there a bubble?" I guess the next question is "What constitutes a bubble?"

As has already been said, in the most of the UK prices aren't doing anything very exciting, yet.

If we believe that inflation really is around 2.7/2.8% (and most of us would suggest that unofficially it's higher) prices in most areas are barely keeping up with inflation.

Depending on which measure you use the long term trend for HP increases is 5% - 8% pa on average and we are not even there yet. If prices are to catch up with the long term trend, they need quite a spurt (It might be that we are now in an era of a new trend line and so that won't happen)

I would have thought that we only need worry when average prices are consistently ahead of the long term trend

Whilst most of us are still looking at prices being below pre-crisis peak, and/or negative equity, I find it alarming that some seem to be trying to destabilise a recovery (by hitting sentiment) before it gets rooted

My guess is that the banks will be happy to see a jump, albeit gradual, to at least pre crisis price levels so that assets on their books match loans made against.

Plus perhaps a bit more for inflation over the last 5 years

Once we get there, depending upon how inflation is playing out, we might see some kind of effort to dampen things a little, but traditionally HP have usually been a couple of points ahead of inflation without doing anyone any harm.

I have to say it has annoyed me that a recovery from rock bottom, which hasn't even got close to "normal" levels of activity and price rises, has already been described as a bubble and I wonder whose agenda we are jumping to, and why.

A couple of years ago Mervyn King said words to the effect of "We must learn to stop calling any increase in asset value a bubble, and any fall in asset value a crash. Increases and decreases are a normal part of market activity".