Housing market bears recently encouraged by a fall in mortgage approvals and slower price gains may have to retreat to the woods, judging from the Bank of England's first-quarter Credit Conditions Survey. The net percentage of banks expecting stronger demand for mortgages to finance house purchases rose to +40 – the highest in the survey's three-year history and up from +3 in the fourth quarter of last year and a low of -40 in the second quarter of 2008. Softer indicators in early 2010 appear to have reflected bad weather and the temporary impact of the ending of the previous stamp duty holiday.

A majority of banks also expects a rise in demand for unsecured consumer loans and corporate credit – see first chart.

Credit supply, meanwhile, should improve, with the net percentages expecting greater availability of corporate, mortgage and unsecured consumer loans all positive, the latter for the first time since 2007 – second chart.

A previous post suggested that the recovery in house prices would follow the pattern of the early 1980s, a possibility also mooted by MPC member Andrew Sentance. Inflation-adjusted prices have actually moved ahead of the 1980s path recently – third chart. The bears' assumption that restricted credit supply would offset the stimulus of low interest rates – supplemented now by an extension of the stamp duty holiday up to a higher threshold – looks increasingly questionable. Higher official rates may be needed to head off an overexuberant housing market.