UK House Prices: 2nd Rise in 3 Months, is the Market Turning?

Well, Nationwide released the figures for May from its UK house price index, and it has been added to the "mounting evidence" that the UK housing market is on the turn. This is because house prices apparently rose 1.2% in May, and the tri-monthly measure, which is widely regarded as the least volatile and thus the most accurate showed the slowest rate of decline in over a year at just 0.3%.

Nationwide put the fall down to supply reducing as buyer activity increases slightly, and their chief economist Martin Gahbauer got my monthly award for stating the obvious when he said:

"If the supply of homes onto the market does increase, the recent moderation in the pace of house price falls may not be sustained. However, the ultimate outcome for prices depends as much on the development of demand as it does on supply dynamics. [So] If recent buyer interest translates into sales and this outweighs any potential increases in supply, the recent moderation in price falls may continue."

This is the second monthly increase recorded by Nationwide in the space of three months, and it comes at a time when there has been a lot of positive reports about the housing market; with both the Royal Institute of Chartered Surveyors, and the National Association of Estate Agents reporting rising transactions and the British Bankers Association reporting an increase in mortgage approvals for home purchases in April.

The positive news brings up the possibility of a great irony however, in that it may be the amassing of positive news that leads to the extermination of any green shoots that there may be.

In the last year investors have been buying houses at ridiculously low prices by the bucket load at auctions. The current wave of positive news may be enough for them to start putting them on to the market, especially when you weigh in the fact that most were newbie investors.

Then there are the investors caught short by the crunch, and forced to rent out properties that they had planned to sell, they also might start putting them onto the market. Add in the residential owners who had put off selling till things improved and the initial scenario laid out by Gahbauer becomes all too likely.

Even if the market isn't flooded with properties; as I said in my last post there is still too much unemployment in Britain for this to be the start of a recovery. Millions of people are unemployed, many more facing imminent job losses and millions more unable to rule out the possibility of losing their job. Take them all away and there isn't likely to be enough people left to bring a recovery in the housing market.

Even the banks think that more house price falls are likely, Lloyds TSB recently said that another 6% fall is necessary, and some analysts even said that the FSA's stress test figure of a 50% peak to trough fall was highly likely, with prices having fallen 20%+ already. Prices need to fall and sellers unwilling to drop them is part of the reason behind the banks tight lending policies, they aren't going to lend a sum of money to buy a property, when that sum is going to be almost or more than the property's value a few months down the line.

All in all there are still too many foibles and potential pitfalls for me to believe the market is even close to being on the turn. I still think the market will not bottom until prices have fallen another 15%, or the wider economy recovers, whichever happens first.