House prices have risen in January for the first time in months, but is it a short term bounce or is the housing market beginning to recover?
By Gordon Miller
2009 is looking like it will see the bottom of the housing market in the UK. Analysts forecast house prices will drop around 10 to 15% in 2009 alone, which would indicate a peak to trough decline of 25 to 30%. The RICS said it expected the average cost of a home to drop by at least 25% from its peak in October 2007 to the lowest point.
Peter Bolton King, Chief Executive of NAEA, said: '2009 is likely to be the year the recovery begins and the fall in house prices will begin to bottom out. Officially, house prices have come down since their peak by around 13% but speaking to agents it seems clear that in some areas at least prices have come down by more than 20%.'
'We haven't seen that kind of fall, in such a short period of time, ever before. However it is also clear that parts of the market are perhaps beginning to bottom out, and it seems possible to me that once the recovery begins, we could see a bounce as pronounced as the fall.'
Hot on the heels of this prediction, prices rose in January 2009 by a robust 1.9%. However, according to Halifax, prices in the three months to January were 5.1% lower than the previous three month period. Commenting on the report's findings, Martin Ellis, housing economist at Halifax, said: 'It is always important not to place too much weight on any one month's figures. Historically, house prices have not moved in the same direction month after month even during a pronounced downturn. For example, prices fell for seven successive months in 1989 but subsequently increased in three of the first 10 months in 1990 even though the overall trend in prices was downwards. There are some very early signs that market activity may be stabilising, albeit at quite a low level. Nonetheless, continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to mean that 2009 will be a difficult year for the housing market.'
In particular predicting Bank of England interest rates is a perilous exercise. No one, or almost no one, saw the 1.5% rate drop of November 2008 coming. And few people called the new record low rate of 1.5%, announced on 8 January 2009, followed by the further 0.5% drop in the first week of February.
Neil Young, CEO of property portfolio managers, Young Group, commenting at the time of the historic interest rate drop to 1.5%, believes that with rates so low, and with little scope to fall further, lenders now have more certainty.
He said: 'In a recent poll 69% of respondents expect the Bank of England base rate to be at or below the current level of 2.0% at the end of 2009, and most predict it to stand at 1.0% at that time.'
Stuart Law, Chief Executive of Assetz, said: 'I believe rates could reach 0% by the summer, although borrowers should not expect their mortgage rates to go close to this level. As base rates tend towards zero, banks will be determined to build in higher profit margins than they have in the past.'
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