Hype doesn’t help, we know that, writes Ed Mead.

But the result is that sellers, influenced as we know by the media, convince themselves that prices are on an unstoppable upward trend, while buyers think the “bubble” is about to burst.

Luckily the truth is more prosaic and perhaps gives us a pointer as to how fragile the overall recovery is.

Market forces have, as we know, driven prices up in London and the south-east. But this is due to lack of supply, rather than raging demand.

Buyers, seemingly feeling the beginning of another credit cycle, have been a bit more confident about borrowing, and having been buoyed up by economic news, ventured into the market.

However, people aren’t stupid and luckily these buyers set the market by deciding what they’ll pay, and our experience tells us they’ve reached the limit of their elasticity.

That same experience tells us that sellers will usually take around three months to understand the changes and react.

A sad corollary of this supply-light market is that competition between increased numbers of agents fighting for a smaller pie is persuading some sellers to listen to unscrupulous ones telling them they can still get their prices despite evidence to the contrary.

Press talk is beginning to catch up and understand how the dynamic is changing.

In prime central London, this boom has a different feel, insofar as previous peaks have been fuelled by City types borrowing large amounts and consequently making themselves vulnerable to interest rate rises.

This time it seems most of the new influx of buyers aren’t taking such risks.

Hence when rates rise, it’s unlikely there’ll be a big market shift, as recent buyers won’t have to sell.

This means that it’s highly unlikely that the areas around the fringe, what we call “Emerging Prime”, will not fall back, and so rather than the bubble we’ve seen talk about, we consider recent rises a re-rating of these areas. Some may say this is long overdue.

Less reported has been the fact that the Land Registry’s March update, here:

http://www.landregistry.gov.uk/media/all-releases/press-releases/2014/market-tren-data-march-2014

showed a UK house price FALL of 0.4% which followed a 0.2% fall the month before and meant a less than cataclysmic annual rise of 5.6%.

We clearly can’t rely on two months’ set of figures but it is perhaps showing the start of something.

The Bank of England is attempting to pull all levers to cool a supposedly overheating market in order to avoid pushing the nuclear interest rate button.

However, you might feel sorry for Messrs Cameron and Osborne should their vote-winning house price surge fizzle out mid/late autumn, as is now looking likely.

All this would be because the BoE over-reacted to something that the fragile demand side was always likely to call time on anyway.

Ed Mead is executive director of Douglas & Gordon

http://www.douglasandgordon.com