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The UK suffered from a boom and bust of housing bubble, similar to the US, Ireland, Spain and many other countries.

The housing sector has shown signs of recovery. This is seen in the Construction PMI and also in house prices. But there is a growing gap between London and all the rest.

Rightmove is a huge British real estate website. It boasts over a million properties for sale in the UK, including properties from developers. It also provides a variety of homes for British expats in Spain. The variety is large, to say the least.

Its recent HPI  showed  a jump of 4.1% in prices in February, and a yearly rise of 1.4%. Has the sector bottomed out? In its report, Rightmove mentioned more mortgage deals and evidence that dormant buyers are springing back to life.

It also mentioned that London prices are now  within 1% of the all-time high. Have good times arrived? Is the British economy booming?

The economy certainly isn’t booming. It actually squeezed in Q4. Unemployment is relatively high at 8.4% and austerity measures threaten to put more pressure. The BOE  just expanded its QE program  in order to support the economy.

Why is London booming?

  • The British capital is also one of the “world’s capitals” for the financial sector, arts and practically everything.
  • The British south has always been richer than the north. Gaps that widened in the 80s were never narrowed.
  • Euro-crisis: London is a good place to “hide” from the euro-zone crisis. This is especially true for those fearing of European proposals for a financial transaction tax (Tobin tax).

Outside of London, the picture is different. The economic troubles are taking their toll on prices. HBOS has recently shown a drop in prices in Scotland, Northern Ireland and also in Northern England.

So, the rises in London are pushing the HPIs higher, but certainly, do not reflect the state of housing in the UK or the state of British economy. The recovery still has a long way to go.

Further reading:  GBP/USD Forecast.