Just in time for the holiday shopping rush, the Halifax reported on Tuesday that UK house prices increased by 1.4 per cent in November — meaning homeowners can all feel a bit richer and spend freely on go-go hamsters, Christmas dinners and festivities galore.
Indeed, as the Halifax noted in its press release:
This was the fifth successive monthly rise with prices more than 4% higher over the first eleven months of the yearThe recovery in house prices since the spring has been driven by increased demand for property, largely due to the improvement in affordability for existing homeowners and first-time buyers who can raise the necessary deposit. Somewhat higher demand has combined with a low level of properties available for sale to push up prices.Further ahead, the prospects for the market will depend on how the UK economy evolves and whether there is a significant increase in the supply of properties for sale.Overall, our view is that house prices will be flat during 2010.
But before readers get too excited, it’s probably worth highlighting the somewhat grittier view on the subject from Howard Archer, chief economist, at IHS Global Insight. As he noted (bah humbug):
Despite the further significant rise in house prices reported by the Halifax in November, we remain sceptical that the house price rally seen since early-2009 can be sustained for much longer. Admittedly, very low mortgage interest rates are likely to remain supportive for the housing market for some considerable time to come, but other fundamentals are largely unfavourable – housing market activity is still at a low level compared to long-term norms despite improving in recent months, unemployment is high and still rising (albeit at a reduced rate), earnings growth is low and still falling, and house price/earnings ratios are currently moving back up.
Indeed, [the] latest Halifax data show that the ratio of house prices to earnings rose back up to 4.68% in November from 4.32% in April. This took it further above the 1983-2009 average of 4.00. A relapse in house prices will be even more likely if the recent firming trend leads to more properties coming onto the market, thereby moving the supply/demand balance away from vendors towards buyers. Potentially significantly, the Halifax reported that there are “some indications that more people are deciding to put their homes on the market.”
Consequently, while house prices may well rise further in the near term from their early-2009 lows, we suspect that they they will be prone to relapses in 2010. Indeed, we believe house prices will fall by around 5% next year, and would not be surprised if the slippage is greater still. Much will clearly depend on whether the economy can build a recovery after a probable returns to growth in the fourth quarter, how much further unemployment rises, how much earnings rise, how quickly and to what extent credit conditions ease, and how many properties come on to the market over the coming months. On the positive side for the housing market, interest rates seem unlikely to rise for some considerable time to come and will then probably increase only gradually.
A 5 per cent fall?
But that, we hear you say, goes against the Halifax’s own forecast that house prices will be flat during 2010. In fact, it also goes against what house price futures — as provided by Traditional Property — are currently pricing in too:
In which case, goodness — what a quandary.
All we know is that futures have never proved a reliable forecasting tool for commodities .
But before we start counting houses as commodities, we’ll leave you with the thoughts of Tradition’s Peter Sceats, who commented as follows on the matter on Tuesday:
What these guys sometimes miss though is that there are not enough houses in the UK and there are still overseas investors with shed loads of money that is not sterling.
Related links:
Latvian house prices fall 59.7% in Q3 (y/y) - FT Alphaville
UK housing snaps into contango - FT Alphaville
The sting in Nationwide’s house price survey – FT Alphaville
UK property, building castles in the sand – FT Alphaville