The market has been ignited by the chancellor’s Help to Buy scheme, which involves the Government supplying part of the loan required by new homeowners. The policy has been criticised from all sides as a cheap stunt that will eventually backfire, with one FE Alpha Manager telling FE Trustnet it was the "greatest Ponzi scheme in living memory". However, McVeigh is not so sure.
"People have had reasons why the housing market is going to crash for the last 30 years," he said. "It might or might not happen – but it hasn’t yet."
"What’s clear is there’s a lot of momentum in the housing market across different geographies, which suggests that the housing market recovery is realistic."
"If you lose your job and need to sell your house, the price is probably half what you think, but if you have the ability to sit tight for a year or so while you sell it, you can probably get a good price."
McVeigh has put his money where his mouth is, building up a large stake in his Jupiter UK Growth fund to Lloyds bank, which is highly exposed to the UK housing market.
Although the manager bought the bank a few years ago when it was at just 26p, he is hanging on to it, unconcerned by the possibility of a blow-up in the residential property sector.
Performance of stock vs index over 2yrs
Source: FE Analytics
One of the arguments for a fall in house prices is based on the affordability of a typical house relative to an average salary.
The house price to earnings ratio tells you how many years you would have to work on the average salary to pay off the average house price, if every penny went towards it.
Lloyds Banking Group calculates the data as part of its Halifax House Price Index, and advocates of a house price correction say the long-term data suggests a fall is imminent.
The data set shows that the current ratio is 4.58 compared with a peak of 5.86 in the second quarter of 2007, suggesting that there has been some significant cooling down.
"There was a very strong run-up in 2008 but quite a lot of that has been wound down," McVeigh said. "There has been some wage growth so the ratio is improving somewhat, but you can always see risks."
Many commentators point out that the current figure is still expensive compared with long-term trends. The Halifax data shows that the average ratio since it was first calculated in 1983 was 4.09, not too far off the current number.
House price to earnings ratio
| House-price to earnings ratio | |
|---|---|
| Q1 2012 | 4.46 |
| Q2 2012 | 4.45 |
| Q3 2012 | 4.44 |
| Q4 2012 | 4.45 |
| Q1 2013 | 4.51 |
| Q2 2013 | 4.58 |
Source: Halifax House Price Survey, Lloyds Banking Group
And while the low is 3.09, this was recorded in 1995 at the bottom of the market after a boom and bust period.
It is true that the 4.58 figure is close to the 4.99 reached in that previous peak in 1989, but McVeigh points out that there is no reason to assume that prices will revert to previous levels.
It is worth noting that the data produced by Halifax dates back only to 1983, and there is no reason to believe that the average over that time should be any benchmark number.
Relative valuation levels can alter over time, a lesson that the financial crisis has hammered home.
From an investment point of view, McVeigh also notes that the residential market was not hit as hard as the commercial property sectors during the crash.
Data from FE Analytics shows that the Halifax Property Index lost roughly half the amount the commercial property sectors did in 2007 and 2008, measured by the IP indices.
Performance of indices over 6yrs
Source: FE Analytics
Residential property was 22.31 per cent down from 1 January 2007 at its worst point while industrial lost 32 per cent, office 37 per cent and retail 39 per cent.
Over the past year the Halifax Property Index has gained 5.38 per cent as stock market returns and GDP figures have also risen.
McVeigh points out that employment figures also look good, which is supportive of house prices.
His optimism contrasts with a number of commentators who have spoken to FE Trustnet since the policy was unveiled.
Tony Yousefian, manager of the OPM Property fund, says that the scheme is artificially inflating the market and will only lead to another crash in prices.
Danny Cox, head of advice at Hargreaves Lansdown, said prices would eventually have to equalise with the historic price-to-earnings ratio.
