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.

Nationwide UK House Price Index for August Hardly Surprising: More Rises = Bad News for Housing Market

The Nationwide building society, one of the UK's largest mortgage lenders has released its August data on UK house prices -- strange that they released it before the end of the month, usually its a few days after but there we go.

The Nationwide figures for August are largely unsurprising; UK house prices are up 1.6% on the month -- the fourth consecutive monthly increase -- up 3.3% on a tri-monthly basis, and now down just 2.7% on an annual basis.

What is surprising as you may have already seen Richard McKay point out on the Zungalow blog or his comments on Write About Property, is that the Nationwide report put the rising prices down to low interest rates.

As Richard said, yes low interest rates will almost certainly have been partially responsible for the minor increases we have seen in transaction levels this year. But said increased transactions would not have been enough to trigger the price increases of the last few months, were it not for the drastically low supply levels we are currently seeing in the UK housing market.

On a historical basis, as far back as 1993, if transaction volumes are this low, house prices are falling. The fact that they are rising is actually bad news for the housing market's future and here's why:

A: Vendors are still predominantly unrealistic about what their home will sell for. House prices rising is stopping this from being rectified, and the correction will not end until the gap between what the majority of vendors are willing to sell for, and what buyers are willing to pay closes. In short prices rising now, when vendors are still unrealistic is simply perpetuating the crash.

B: Homes still aren't affordable to the average first time buyer. The long-term average is house prices under 4 times the average salary. They are currently between 5 and 7 depending on who you listen to. Major crashes like this in house prices usually cause prices to go well below the long-term average, and it is unlikely that this crash will be any different. So again, house prices rising while homes are not affordable is perpetuating the crisis, and making another correction necessary.