Looks Like I Was Wrong on Second Dip - Or Was I?

Some pretty important things have happened in the microcosmic world of UK house prices since my last post. Well, they aren't actually important in the traditional sense of the world but they are important to this blog's stream.

Two indices have come out for a start, both Halifax and Financial Times both said that UK house prices had risen in September; Halifax by 1.6% on the month, and FT by 0.6%. This creates the impression that the Land Registry fall in August was a blip, that UK house prices are continuing to rise and that this will be shown by the Land Registry index again in September.

It is easy for me to argue with the Halifax index; they have commercial interests, benefit from positive sentiment and their index is based on mortgage approvals, not sale prices. I can't however argue with the FT index; it is compiled by the impartial Acadametrics, and based on sales registered at the Land Registry, which are collected and compiled almost in real time.

However, still nothing has changed; transactions are still shockingly low and it is only the fact that supply is lower keeping up prices. Whether it is next month or next year, there will be a second dip in UK house prices - mark my words.

Government Figures on UK House Prices for July Interesting in Places

Well, the government (Department for Communities and local Government) released its figures on UK house prices for July yesterday, and unsurprisingly they show price rises across the board, except for on the annual measure, for which the rate of decline continued to slow.

What was surprising however, was the fact that the DCLG index now has the rate of annual decline at slower than the Halifax, though it is still faster than that of Nationwide.

According to the DCLG index for July, UK house prices rose 1.4% on the month (Halifax 1.1%, Nationwide 1.3%).

The DCLG's tri-monthly measure turned positive for the first time, with a growth of 2.1% in the three months ending July, compared to a fall of 2.8% in the previous quarter. Both Halifax and Nationwide recorded tri-monthly growth in the three months ending July (see links above). The tri-monthly measure is widely recognised as the more accurate indicator of short term trends because it is less volatile.

Now, annual measurements: in July 2009 UK house prices were 8.3% lower than in July 2008 according to the DCLG, 12.1% lower according to the Halifax and 6.2% lower according to the Nationwide.

Of course the Nationwide and Halifax have now both released their figures for August, and both showed prices continuing to rise on the monthly and tri-monthly basis, and the annual rate of decline continuing to slow. Interestingly the Halifax figures still show the annual decline at faster than the DCLG, at 10.1%, though they show a £112 increase for 2009 so far. According to Nationwide house prices were down just over 2% on an annual basis in August.

Outlook on UK House Prices Depends on Who You Listen To

There are many conflicting reports on the future of UK house prices at the moment.

This week Halifax issued their August figures showing a 1% monthly rise, and Knight Frank put the UK property market in position 13 in its quarterly league table, with prices having risen 1.1% in the second quarter. According to Knight Frank global house prices (including the UK) have started to stabilise, and there are to be very few price falls from here on out.

Yet in the same week estate agency Jones Lang La Salle inc issued a research report on how UK house prices are likely to fall 7% next year, as rising unemployment, combines with curbed lending and a struggling economy to reverse the "unsustainable and unjustified" gains of this year.

What's the truth here? Well, I'm afraid I am with Jones Lang La Salle.

I have said it before and I'll say it again: without normalised lending we can't have the kind of transaction volumes that we need to help house prices find a true and solid bottom, and without a better employment outlook it is unlikely there will be sufficient numbers of people even looking for mortgages to do so.

As my regular readers will know: I believe the market will bottom in mid-2011 when the international economic recovery is well under way allowing the banks to de-restrict lending somewhat.

The difference perhaps between the vastly varied outlooks is that Knight Frank is a UK based estate agency, and La Salle is a US based agency.

Positive News on Housing Market Continues, I'm Still Not Budging

So, UK house prices have bottomed. I know it's sudden but we can't argue with a panel of 30 economists from banks and investment consultancies now can we?

That's right, yesterday Reuters revealed the results of surveying one such panel, and the consensus was that the UK housing market has bottomed, that house prices will end this year not much lower than they started it, before rising .5% next year and 2.5% the following year.

And then today, the Halifax finally revealed its figures on UK house prices for August, showing a 0.8% rise, the second monthly rise in a row. The quarterly growth, regarded as the more accurate short-term indicator now stands at 1.7%.
There is a lot of positivity in the housing market at the moment, but there are also a lot of people who are saying that this is the calm before the storm, that a second fall is inevitable.

I unfortunately am in the latter camp. Rising unemployment and restrictions in the mortgage market will keep a lid on transaction volumes for the foreseeable future, and without increased transactions it will always be the supply shortages falsely propping up prices.

Of course the low interest rate and unemployment are like a guillotine above us, if interest rates go up, it could leave more people unable to pay their mortgages as does unemployment, and more repossession properties flooding onto the market would almost certainly tip the supply balance and send prices back into freefall.

In short: I think it is far too early to think we have seen the last of this house price correction. But it doesn't matter, I read an article yesterday that pointed out the obvious: house prices are falling across the property spectrum, so whether trading up or downsizing, by the time you save on the next property what you lose on the current one (or there abouts) you're in roughly the same boat.