Does the Price Rise Signal a UK Property Recovery?

The Halifax recorded a 1.9% increase in UK house prices for January, a surprising rise after ten straight monthly price drops. While some commentators have hailed it as a sign that the UK property market recovery is beginning, and agents have been quick to shout "buy now the bottom is here", others have advised caution; saying that none of the factors a recovery relies on have changed and the UK recovery could still be a long way off -- despite the UK base rate being cut again yesterday to 1%. What's the truth here?

Patrick Collins, the Guardian money editor cautioned that the base rate cut will never spur the market, reminding that Japan's almost zero rate hasn't spurred any major prices rises in its property market in two decades. Collins also told how the credit-crunch showed that it is the supply of finance that drives up house prices, he wrote:

"Turbo-charged lending by mortgage companies awash with cash from the wholesale markets sent house prices spiralling upwards. That tap was turned off a year ago, and it shows no sign of being turned back on."

But "the biggest spectre hanging over the UK property market," according to Collins is rising unemployment; not only job losses, but the fear of impending job losses -- especially if unemployment hits the 3million mark.

Patrick Collins is a well respected analyst, and my first instinct after reading his article, based on my agreeing with all the facts was to go along with the opinion of his article; that the UK recovery could still be a long way off, and I am still not saying it definitely isn't.

Collins is right, finance is hard to get, and 15-20% deposits are still being asked by UK mortgage lenders. However the house price rise is hardly coincidental to the NAEA revelation earlier this week that the number of first time buyers (FTBs) in the market doubled in the first two weeks of January, accounting for 22.5% of purchases, up from 10% in January. Not much on its own, but at the same time sales increased to an average of four in the fortnight, compared to monthly averages of 6 in November and December 2008.

More sales and more first-time buyers suggests to me that people are becoming accustomed to the situation, and that the young people looking to set up their family home are somehow finding the funds to do so.

The NAEA also reported that agents reported an average of 10 new sellers in the first two weeks of January. This would seem to affirm that people are getting used to the fact that the market will be in decline or stagnation and it is no use sitting around waiting they must get on with their lives -- with many people wanting to sell and move for better job opportunities. The price rise may show that this attitude can positively affect UK house prices.

It certainly can't be denied that the increase in first time buyers may have been at least partly, or even primarily responsible for the price rise -- possibly because of FTB's putting the quality and location of their future family home above finding the biggest bargain. If FTBs are responsible for the rise and they continue to increase in numbers, more price rises could follow.