UK Housing Market Stares into the Abyss

Mortgages for house purchases were 23% higher in June than in May, the Council for Mortgage Lenders has revealed. This comes after all the major indices have shown several monthly price increases this year, bringing the annual fall to 12.1% with around a 1% fall in prices so far this year.

Currently, the upward pressure on house prices is caused by a slight increase in activity -- as low interest rates, and positive economic data bring a bit of confidence back into the market -- combined with a drastic shortage of saleable (realistically priced) housing stock.

Because the mortgage market is still on its knees and unemployment rising, activity is unlikely to reach the levels we see during a balanced housing market, and so we are left vulnerable to supply increasing quicker than activity and sending prices back into freefall.

None the less the positive news is enough to make some people believe that house prices will grow over 2009, that is to say house prices will be higher in January 2009 than they were in January 2008, and some people (including the Centre for Economics and Business Research) believe this will be the bottom of the market.

This is a logical thesis, during a correction like this one the rate of annual decline accelerates by the month, before beginning to slow as activity increases. When annually prices start to grow again then this is usually the bottom of the market.
However, there is nothing normal about this correction, because it has been triggered by the almost complete collapse of the developed world's banking system.

Mark my words, there will be a second fall in UK house prices, how long prices grow for, and whether there is a growth overall in 2009 merely determines how severe the second correction will be.