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There’s a bear in the house

Halifax and Nationwide continue to report house price growth but there are warnings that prices are set to falter as the recession drags on.

Halifax says prices rose by 0.8 per cent in August, the third increase in four months, while Nationwide’s results are even more positive with house prices up by 1.6 per cent in August, the fourth consecutive monthly increase.

This has led to some bullish predictions. National Association of Estate Agents president Gary Smith says these statistics appear to confirm that the market has finally bottomed out and says the market could be moving to a point where the gradual recovery will be sustained.

He says: “As families now begin to perceive that, with realistic prices, historically low interest rates, together with the potential for capital growth, they will upgrade their properties and move through the system bringing their own houses on to the market and boosting supply.”

But there is a growing counterview that these reported increases are merely a bubble. Jones Lang LaSalle head of residential housing James Thomas says the pick-up is “irrational” and, without improved lending, a slowdown in unemployment or an increase in new properties, the market will struggle going into 2012.

He says: “The economic fundamentals that have supported the upturn will be eroded as unemployment hits a peak and mortgage lending remains weak. It is impossible to ignore the short-term risks posed to the residential sector by rising unemployment and poor credit availability.”

The Ernst & Young Item club is equally bearish. It uses the economic models of the Treasury and says the UK may have to wait five years for a pick-up in the housing market.

In a special housing market report, it says: “The housing market appears to be stabilising. However, this is largely due to a short-term imbalance between supply and demand, caused by an acute shortage of available properties. But the state of the mortgage market is a key factor. Mortgage lending remains very depressed. This situation is unlikely to change until banks succeed in rebuilding balance sheets.

“The fundamentals which underpin housing demand remain unsupported and we expect prices to dip again in the first half of 2010.”

The club warns that without improved mortgage lending and more properties on the market, UK house prices will experience another two years of depression and will not reach the highs of 2007 for another five years.

First Action Finance head of communications Jonathan Cornell says the mortgage market should view any reported house price increases with scepticism. He says: “There are now nearly 2.5 million people unemployed. Regardless of bank rates, regardless of house prices if people do not have a job or fear for their job, then they will not be able to afford a mortgage.”

Legal & General head of mortgages Ben Thompson believes the law of supply and demand dictates that prices should not fall much lower. He says: “There is depressed demand coupled with a reduced stock, so house prices should not fall much further.”

He also argues that while unemployment and constrained credit criteria may stop a large proportion of people from borrowing, there are still many people who are surviving and flourishing in the recession.

He says: “This is a two-speed recovery – one half of the population are finding it very tough but the other half are in stable employment and are looking at a lot of cheap homes on the market.

“We might not see considerable increases in the mortgage or housing market for some time but never underestimate the hunger and demand of the UK homeowner.”


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