Patrick Hosking

The funny thing about the housing market is not that prices are starting to accelerate again, but that policymakers, regulators and lenders are so relaxed about it this time around, and so confident that it won’t lead to a painful reversal.

Prices rose 10.5 per cent this year, 3½ times faster than in 2005, according to Nationwide Building Society. Valuation measures are deteriorating. Affordability is again plunging, especially for first-time buyers. Average earnings rose less than half as fast as house prices. Borrowing costs are on the up. Even with rents rising, buy-to-letters are struggling to make the sums add up.

The occasional Cassandra issues a warning. David Miles, of Morgan Stanley, argues that a substantial fall in real house prices is likely at some point. The Financial Services Authority has quietly instructed banks to ensure that they could cope in the event of a 40 per cent crash.

Yet on the whole the attitude is sanguine. That’s in sharp contrast to the summer of 2002, the last time that the market was frothing upwards. Then, Sir Eddie George, Governor of the Bank of England, told MPs that house-price inflation was “unsustainable”. His deputy, Sir David Clementi, said: “The longer it goes on, the sharper is likely to be the eventual correction.” Sir Howard Davies, then head of the Financial Services Authority, said that he wouldn’t be surprised if prices fell.

That June, the average home in England and Wales cost £103,500. Fast-forward 4½ years and the average home costs £173,700. There has not been a quarter when prices have even paused for breath, let alone fallen. Prices have continued to grow much faster than incomes.

If Sirs Eddie, David and Howard were right to be concerned then, they, or rather their successors, should be thoroughly alarmed by now. If price falls then seemed possible, now they would appear probable. If buyers then were risking taking on too much debt, now they would appear to be positively reckless. But few believe that a crash is remotely likely. Partly this is rational. The era of permanently low inflation and interest rates seems more assured. Employment prospects look benign. The gap between supply (constrained by planning rules) and demand (boosted by immigration) is as wide as ever. Partly it is time. The era of negative equity is now 15 years ago and fading from memories.

But partly it is the fear of looking foolish. There are only so many times that you can warn of imminent disaster before being accused of crying wolf.

On most conventional valuation measures, however, house prices are looking more stretched than for a long time. The first law of rubber bands still holds: the more the elastic is stretched, the more pressure there is on it to snap back.

Timing is everything in trades

One of the most dispiriting stories of the past month has been the seemingly effortless and instant rehabilitation of Philippe Jabre, the insider-dealing hedge fund manager.

Mr Jabre and GLG, his former employer, were each fined £750,000 by the Financial Services Authority in August for market abuse. It ruled that his misconduct was “very serious”, although he argued he did not realise he had done anything wrong.

This week it emerged that GLG was facing an additional €1.2 million fine from the French regulator Autorité des Marchés Financiers over another questionable episode allegedly involving Mr Jabre. (GLG is appealing.) These blots have done nothing to stall Mr Jabre’s career. This month he opened a new hedge fund business in Geneva with a team of 20 people and found three blue- chip banks happy to handle his trades — UBS, Morgan Stanley and Lehman Brothers. He is said to be confident about raising $4 billion (£2 billion) from clients.

Market rule-breakers should eventually be given a fresh chance. But a lengthy and contrite pause would have been seemly.

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