UK House Prices 2007-09
Source: BBC – UK House Prices
The Council of Mortgage Lenders CML have stated that given the uncertainty surrounding the housing market they will not be making any predictions for house prices at the moment. Certainly, forecasting UK House prices can be a tricky issue.
The depth of the crash in 2007-08 caught many commentators by surprise. But, then few were predicting house prices would rise in 2009. And much to everyone’s surprise they have risen every month since spring 2009.
What Are The Prospects for House Prices in 2010
Low Interest Rates.
The cut in interest rates to 0.5%, is one of the main reason many homeowners have been able to hang onto their homes. It explains why mortgage defaults have been lower than in the last housing crash. Given state of the economy and the degree of spare capacity, interest rates are likely to remain low throughout 2010. (see: Interest rate predictions) If inflationary pressures do occur (and there is little sign of real inflation apart from cost push factors), taxes will rise rather than interest rates.
Also, more people will be coming to the end of fixed term mortgages so may be able to remortgage at lower rates than before. With low interest rates continuing in 2010, this should encourage buyers – at least those who are able to get a mortgage.
Mortgage Supply
Perhaps more important than house prices, is the number of property transactions. According to HMRC, the number of completed sales rose from a low of 40,000 in January to 90,000 in October. This suggest mortgage lending is slowly being relaxed, and buyers are slowly returning to the market.
Falling Prices and Confidence
The rise in house prices we have seen in 2009, may well encourage more people to put their property on the market, this increase in supply could depress prices, but, at the same time, the fact prices have stopped falling so sharply may mean banks are less strict about requiring very large deposits. If banks and consumers feel the worst of the crash is over, it will encourage more people to buy and more banks to lend. Many people are feeling now is a good time to buy.
Growth and Unemployment
This has been the longest recession (six quarters of negative growth) since the Great Depression, but, unemployment has risen less than expected (see: why is unemployment not higher?) This muted rise in unemployment has been a big factor in stabilising prices. 2010 should see a sluggish economic recovery, unemployment will take a long time to fall, but, if it does peak soon, that will definitely help the UK Housing market.
Long Term Fundamentals
House prices in the US, are still falling nearly 4 years since they first started to fall in 2006. Why should the UK be any different? Well one reason is the excess supply in US and the continued shortage of supply in UK. House price to income ratios are still above long term trends, but, there is also still a long term shortage of housing. Whilst this occurs, UK house prices will continue to be more expensive than other countries
In April 2008, I suggested despite short term factors, in the long run, house prices could well rise to £300,00 in the next 10 years. (see long run forecasts) This is not necessarily a good thing, but, it could well happen
3 comments ↓
Great post, I have to say we can only hope that things start looking up. The UK is so lucky to have interest rates at the low % we here in South Africa, are only hoping that they bring ours down again, but when one really looks at it maybe it is a good thing that we have interest rate set at what they are currently as this actually has help boost our economy, making people more aware as to what is happening and has got them to spend less and rather save and bring down their debit.
Hi
why do you deduce a price rise in housing since Spring 2009, when your own graph shows a fall in prices until September 2009, when the Halifax (but not the Nationwide) showed a rise in prices for the first time since April 2008?
Your graph actually shows prices reducing more slowly through most of 2009, not increasing!
I would really like to know of your response
Arthur Axtell
The thing is monthly data shows an increase in prices, but house prices may still have fallen in the past 12 months.
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