According to the Nationwide survey, UK house prices are just 10% below their 2007 peak. In May 2010, house prices are £169,162. The annual house price inflation is running at 9.8%.
On face value this seems strange given that:
- Unemployment has risen to over 2.5 million (highest since 1994). Arguably this is much disguised unemployment too
- Serious credit crunch in banking sector, making mortgages much more scarce than in 2007.
- House price to income ratios still above long term averages, and almost double similar ratios in the US, where house prices have fallen much more considerably.
However, the Halifax survey of house prices has shown two months of falling house prices as homeowners take advantage of rise in prices to sell.
Also, the forecast for future house prices is more uncertain.
Interest rates are unlikely to rise in near future, as government pursue deflationary fiscal policy to reduce deficit. However, with inflation at 3.7% and interest rates at 0.5%, they may well start to rise next year.
Uncertainty over nature of economic recovery. With unemployment still rising and the likelyhood of public sector job cuts, unemployment may continue to rise leading to more repossessions.
Housing Demand remains thin as potential first time buyers struggle to save necessary deposit.
It comes back to the old story of the UK housing market – shortage of houses for sale, keep house prices high on thin volumes.
In such a climate, there is the likelyhood of house prices struggling to maintain recent gains.
5 comments ↓
My house dropped by 10k and its proving difficult to sell in the current market and to cover my initial outlay, it might be time to rent it out.
I think many people were not expecting house prices to rise this quickly, although will inevitably make it harder for people to get on to the housing market in the first place.
[...] Firstly, the rise in house prices has taken many by surprise it has been based on weak fundamentals with only a limited rise in demand. A knock to economic growth could push back overvalued house prices. [...]
London properties are not overvalued if you compare the yield on a rental property with the yield on bank deposits or the FTSE 100. With mortgage rates at current levels, property is twice as affordable as it was in 2007 and will become even more affordable as lenders reduce margins on mortgages.
As first time buyers, we got our place on a fixed term 100% interest only. Yet me made sure we could pay this each month. As we fixed before the rates fell, we’ve been paying around 6% for the last 4 yrs. However, we’ve seen the value of our £200k house rise to around £230-240k – much better than renting. I just hope we can re-negotiate some better terms when it comes around next year, and fix them.
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