A Long Hard Look at the Medium-Soft UK Housing Market

The latest round of figures is in, again telling a conflicting story on UK house prices past, present and future.

The latest RICS index has shown more homes coming up for sale than there has been for some time, and demand rising slower than it has for months. Because the recent rise in house prices has been fuelled by short supply and rising demand, this could lead to stagnating prices RICS said.

Meanwhile, Rightmove, the UK's largest property portal has reported asking prices rising in January compared to December. This the second monthly rise, and left asking prices over 6% higher than in January last year. However, it is worth noting that the Rightmove index is based on new additions to the site only, which make it skewed towards positive growth.

The Council of Mortgage Lenders said that mortgage lending was 14% higher in December than in January, which was in conflict with the month traditionally representing a lull. While this would normally be welcomed with open arms by the CML, the possibility that December's growth was a rush to beat the end of the stamp-duty holiday on December 31st has left CML cautioning that this could lead to a bigger-than-usual dive in the first part of this year. None the less CML said that: with the economy improving and the credit market loosening, 2010 would be a better year for the mortgage market, especially towards the end of the year.

And finally Britain's biggest private house builder The Miller Group has reported that sales have been rising. The firm has already secured £108m worth of sales for this year, a 104pc jump on this time last year. Keith Miller, chief executive, said that legal completions for last year were flat at 2,068 sales, despite a slow start to the year, although the average selling price slid from £164,000 to £160,000. However, he added that restricted mortgage availability and rising unemployment are potentially a "serious obstacle" to a return to a "more normal" housing market with higher sales and building volumes.

This volatility and conflicting stories is only to be expected from a rise in prices fuelled entirely by a lack of quality homes for sale. The market never bottomed, but price rises were forced upon it by an unpredictable set of circumstances, namely rock bottom interest rates, other stimulatory measures and a supply shortage, which was at least partly because of said low interest rates (prevented repossessions and forced sales from jumping as they would have otherwise).

So, where do we go from here: well, because the market never saw a legible bottom, where bu8yer and seller expectations really met in the middle, the market has been left vulnerable to a rise in supply or a fall in demand, not met by an equal or greater move in the opposite direction of the other. Therefore, until prices and what buyers can afford or are willing to pay are able to meet the volatility will continue. Thus, it will continue until wages rise sufficiently, or prices fall sufficiently. Some believe (including our own Liam Bailey) that this will take until at least the second half of 2011.

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