House Prices Update

According to Nationwide house prices rose by 1.3% in July, taking the annual change in prices from -9.3% in June to -6.2%.

Whilst house prices were in free fall in 2008, few houses were selling and as a result there are now a pool of prospective buyers ready and able to buy property. Now that the economy is showing signs of recovery and the banks having been bailed out by the government to such a massive extent, buyers are tentatively coming back into the market, wanting to benefit from the historically low interest rates and house prices.

However, the rise of 1.3% in July is not expected to continue at the same rate in the coming months. Unemployment is expected to reach 3.2 million in 2010 and with high unemployment and with continued job insecurity, existing owners are more unlikely to sell and buyers are less confident in their investment.

However, on the other side of the coin, this means that there will continue to be a shortage of property and prices could continue to improve.

According to Halifax house prices increased by 1.1% on average in July. They also show that number of mortgages approved increased by 22% between the first and second quarters of 2009. The low interest rates have reduced mortgage payments: in July 2009 monthly repayments accounted for around 21.4% of the average gross household income and this is the lowest proportion of household income since mid 2004. The long-term average is 20.4%.

The Center for Economics and Business Research predict that house prices will fall by 3% for the remainder of this year and would then rise by 2% in 2010 and 3.6% in 2011.

The future of house prices continue to look uncertain. In the short term, unemployment is continuing to rise and the economy, although improving, is still looking shaky - could there still be a "W" recession? - no one is sure yet. Currently prices are being buoyed by the shortage of property available for sale and the low interest rates. This could continue as sellers remain reluctant to put their property on their market. And over the long term there is expected to be a shortage of housing which will keep house prices at a sustained premium.

House prices are unlikely to fall dramatically over the next few months - there simply isn't enough property on the market to sustain hungry buyers. The time to watch will be when the reluctant landlords put their houses on the market and then there could be a risk of there being too many properties on the market...