RICS: House Prices to Rise in 2010, They Might, Nothing Will Stop the 2nd Bite

Today the Royal Institute of Chartered Surveyors forecast that UK house prices would rise by 1-2% next year.

They said that, though supply would rise in the first part of the year, it would not increase sufficiently to meet the rate of rising demand.

Simon Rubinsohn, RICS chief economist said:

"The imbalance between supply and demand will continue into the early part of the new year resulting in some further house price gains. However, the combination of more available property and the beginning of the exit strategy from the big stimulus programmes that have helped support the economy will gradually exert a greater influence.
Transactions levels are likely to increase, fulfilling the Christmas wish list of many agents throughout the country but first time buyers are likely to continue to struggle to procure finance from lenders without the help of generous relatives."

Maybe prices will rise in the first half of next year, but without any of the things that made this correction so severe changing, then all the rises are being built on sand.

Unemployment: though the situation has improved slightly in the last two releases, the unemployment rate is still rising.

Restricted lending: though house purchase mortgage approvals have crossed the 50,000 per month barrier according to the Council of Mortgage Lenders many people can't secure finance because they don't have the deposit, and banks are still being a lot more strict in their measurement of who gets a mortgage and who doesn't -- shutting the gate after the horse has bolted anyone?

Affordability: homes are still far more expensive than first time buyers can afford. According to the Nationwide index at the bottom of the last round of falls, the average mortgage repayment was about 90% of the average first time buyers salary. It is now back up to 92%. During the crash of the late 80s it went down to 60% before prices stabilised.

Vendor realism: the Rightmove index has shown asking prices continuing to rise throughout this correction. A true market bottom is unlikely until the gap between what buyers are willing to pay, and what sellers expect to receive comes closer to cloing.

So, I'll say it again: maybe house prices will rise in the first half of the year, but whether it happens in 2 months, 4 months or 12 months, this correction has a second bite and it is going to be nearly as bad as its first.

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