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Econoblog

Discussion and analysis of the latest economic issues.

By Sean O'Grady, Economics Editor of The Independent.

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Improved house price numbers are not a new upward swing

Posted by Sean O'Grady
  • Thursday, 30 July 2009 at 12:08 pm
I’d be inclined not to read too much into today’s house price numbers. First, prices simply couldn’t carry on falling as fast as they were, otherwise in a few years you could buy a perfectly respectable semi for the small change in your pocket. Absurd.

Towards the end of last year, too, the rate of decline in mortgage approvals was so steep that the British first time buyer was gong to become extinct by Christmas: that too was naturally going to bottom out.

But the latest numbers also show that new mortgage numbers are still very low and consistent with broadly falling prices. So why have prices been stabilising or even blipping up a bit? I suspect there are special factors at work. This is more like the last gasp of the old property bubble than the start of a new upward swing, if only because prices remain very high in relation to earnings, even now.

The special factors are: first, people renting out homes rather than selling them, though more distressed sales will follow rises in unemployment and bankruptcies. Second there are some lucky opportunistic cash/very large deposit buyers out there who think they’re buying at the bottom – not a sustainable trend. Third the funds available are, as I say, very limited for house purchase. The 100 per cent mortgage is still not back. When it is, then we can look forward to a housing boomlet - but nothing more spectacular than that.

Comments

danarong wrote:
Wednesday, 26 August 2009 at 03:00 pm (UTC)
Some interesting comments, but the fact of the matter is that people still want to buy houses, it's just that at the moment it is a struggle to raise the funds to do so. If banks loosen their criteria a little and look to actively lend again, perhaps the bottom of the housing market could be in site.

An intersting article discussing this is titled: The bottom of the UK housing market? and may make for an interesting read for anyone interested in the topic.
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