A combination of pent-up demand and a shortage of supply pushed house prices up again in December, according to the Nationwide. This was their eighth successive rise, though there are warnings that the bounce-back may end soon.
The move means that house prices will end 2009 about six per cent higher than they started the year, in defiance of all the forecasts – some of which had been pointing to further declines of 20 per cent or more. Prices fell 16 per cent in 2008. In parts of London and the South-east, indeed, house values are now approaching their autumn 2007 peaks. But the major lenders are now warning that the house price boomlet that began in the spring, and has seen house prices rebound by eight per cent since the February trough, is showing signs of petering out.
Next year, the Nationwide says, will see "no significant house price movements in either direction... We expect the strong recovery in house prices seen during 2009 to slow in 2010, as a more natural supply of property returns to the market."
The Bank of England yesterday said that in the wider economy, credit conditions are easing, with beneficial effects for business. With evidence that today's restoration of VAT to its higher level of 17.5 per cent has prompted a last-minute shopping surge, the news reinforces hopes that the UK economy will officially emerge from recession when the data for the last quarter of this year are published on 26 January. That will also provide a political boost for the Government.
The Nationwide reported a 0.4 per cent rise in average house prices in December, a slowing of the recent pace of rises.
It leaves the value of the average British home at £162,103, up 5.9 per cent on 2008. Although average house prices are still 12.2 per cent off their October 2007 peak, the recovery has been dramatic. It has been fuelled by some special factors, including a contraction of supply as hard-pressed home owners have opted to let out rather than sell their homes, with those in negative equity unwilling to crystallise their losses.
Increased forbearance by banks and building societies, and some government-sponsored schemes, have also resulted in fewer distressed sales than in the very early stages of this recession, or in the housing recession of the early Nineties. The most important underlying factor has probably been the relatively muted rise in unemployment, which has sharply slowed the flow of repossessions and forced sales.
On the demand side, there is some evidence that cash-rich buyers – including first-time buyers receiving financial help from parents, speculators and buy-to-let buyers – have been chasing perceived bargains.
Most observers of the property scene say that these sorts of effects are unlikely to persist, however, and that higher interest rates will also choke off demand. Households keen to pay off debts, and the squeeze on public spending over the next few years, will further dampen any resurgence in house prices.
The Halifax said recently that house prices will be "flat" next year; the Royal Institution of Chartered Surveyors says values will "nudge higher" by 1 or 2 per cent. Howard Archer, the chief economist at Global Insight, commented: "The fundamentals for the housing market are largely unfavourable. While house prices may well rise modestly further at the start of 2010, we suspect that they will be prone to relapses during the course of the year.
"Indeed, we believe house prices will fall by around 5 per cent over 2010 as a whole, and it is very possible that the slippage could be greater still."
The Bank of England's Credit Conditions Survey confirmed that "demand for secured lending for house purchases had risen over the past three months", though the pace slowed from the third quarter and the Bank expects it to change little in the short term. Credit availability improved for medium and large enterprises, but was fairly constant for smaller firms – bearing out complaints from the Federation of Small Businesses over banks' failure to support their members.Reuse content