House prices on the up – is boomtime back?

The housing boom returned in May and it’s difficult to know whether we should grin, cry or just laugh.

The half government-owned Halifax says house prices went up a stonking 2.6 per cent in May.

This is a boomtime number.

There was a bounce in this index in January too (up 2 per cent, proved to be a dying cat though), and of course the context is that gain only just about reverses the fall in the previous month.

Nonetheless, City economists are beginning to get as giddy as a Manchester City fan playing fantasy football with Arab oil money. Other housing indices have been up two out of the past three months, mortgage approvals are up in four of the past five months, and measures of new buyer interest are at a decade high.

As George Buckley of Deutsche Bank: ”This latest Halifax reading is not an isolated case. There are clear signs emerging that the UK housing market has turned the corner. Combined with the CIPS surveys posting the biggest 6 month winning streak in the history of the series, the outlook for the UK economy is improving dramatically”.

Gee whizz! Emerge from your bunker, bin the wind-up radios and crack out the vino. Forget the Mad Max financial apocalypse, soon we’ll all be back to amassing giant property empires (apparently the odd politicians have to sell up), doing DIY and using our lofts as cash machines. Yes?

Well no actually.

I think this number and its supporting numbers are significant, and there are reasons to suspect some sort of rapid rebound is under way. But this rebound is, I would say, a product of government intervention. It is a politically-sponsored housing bump. It comes as the result of massive political pressure to improve credit availability, and huge taxpayer support to clean up the banks’ balance sheets.

I went into my own now state-owned bank last week for some savings advice, and they ended up offering me a mortgage! I do wonder if the staff of state-owned banks are on bonuses to flood the UK housing market with abundant credit.

So I am cautious. I can see the short term politics of getting house prices back up again. But I can see that calculation changing as it emerges just how much taxpayers’ money has been required to improve credit availability.

And on the day the independent Bank of England meets to vote on monetary policy, it’s worth reflecting that the decision was taken to ensure market credibility by removing the politics from interest rate setting.

Now though it does seem that the government has acquired a far more potent lever over credit availability in the economy.