Predictions on UK House Prices

The Land Registry index is out on Monday, so I thought I would take a guess at what it is going to say. Before I start, this is not a forecast simply a guess for a bit of fun.

On the last release, which was for July the Land Registry said that, on average UK house prices grew 1.7% between June and July, and were down 11.7% on the year. The Nationwide said that house prices rose 1.3% between June and July, and Halifax said they rose 1.1%. Annually Halifax and Nationwide said house prices were down 12.1% and 6.2% respectively.

Since then the Nationwide and Halifax have released their figures for August, and showed house prices continuing to rise on a monthly and tri-monthly basis. Halifax said that house prices were 10.1% lower in August this year than last year, and Nationwide says house prices are now down just over 2% on an annual basis.

However, it is a well known fact that it is rises in a few areas that are masking the true picture, and that house prices are still falling rapidly in most parts of the UK. To explain, certain areas where there is a drastic shortage of quality houses for sale, have become sellers markets and the rises in these areas are so big that they are cancelling out the falls in other areas and bringing the overall average price of houses up.

The Land Registry index confirms this, house prices are still down by 22% on an annual basis in some areas.

So, what I must decide in order to predict what house prices are going to have done according to the next release of the Land Registry index is:

Will supply have increased sufficiently in those areas enough to slow or stop the growth in prices?

And/or will the rate of decline in the rest of the country have accelerated (or stayed the same if the rises have slowed), so that the rises in the under-supplied areas will not be enough to cancel the falls out.

In my opinion the answer is yes. I think that the Land Registry index in August will show the start of the second dip in UK house prices. I think that the rising foreclosures will either tip the supply balance in the under-supplied areas, and/or cause accelerated declines in the rest of the country. And I think that the continually worsening employment picture will cause the continued depression of prices in all but the under-supplied areas, and that eventually the rises just won't be enough to mask the picture. If it doesn't happen this month it will next month.

Richard Mckay, director of private property sales site Zungalow.com shares my view.

"The economy is still too depressed and transactions too low to justify the positivity we are hearing about at the moment. The price floor is made of wet toilet paper and eventually it is gonna come crashing down. Of course all properties are falling in price, so people can still sell and trade up without being affected, find out more on our blog," he said.