Much to many people’s surprise, we have seen a recovery in house prices this year. But, it is a recovery lacking conviction or any enthusiasm. A majority of economists still expect house prices to fall in 2010.
As we have often mentioned, the price rises have been mainly due to the shortage of supply on the market, rather than rising demand. This shortage of housing means prices have been squeezed higher by a small number of buyers.
However, the shortage of supply is not the only reason behind the recovery.
- Low interest rates has prevented many mortgage defaults
- Banks are keen to avoid repossession because they want to avoid the bad debts on their books.
- There have been some signs of economic recovery, with improvements in consumer confidence (though official statistics still show we are in recession)
- A feeling that the worst of the house price falls may be over
The economic recovery is, like the housing market, very uncertain and lacking in conviction. Whilst many feel GDP statistics are wrong, and the economy is actually recovering, few expect a recovery to be anything other than weak.
In particular, firms, banks and consumers are all trying to rectify their balance sheets – pay off debt and increase savings. This will depress spending and the housing market into next year.
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