UK House Prices: Can We Really Avoid a Second Dip?

According to Nationwide, UK house prices fell 0.5% in July, slowing the annual growth rate to 6.6% from 8.7%. Worse than that now mortgage approvals are falling as well. I had started to doubt my firm believe in the inevitability of a second dip; maybe low interest rates would continue to support the market? Now though, with mortgage approvals showing that demand may not be so underpinned I am getting back out my wooden spoon and giving it a stir up.

Throughout the duration of rocky periods experienced since prices began their near constant rise last March; every time it looked like the beginnings of a second dip, bulls could always point to still-rising mortgage approvals as a positive indicator. Not anymore.

My readers know I have been an avid believer that the weak fundamentals supporting the growth, combined with the fact that the correction had not corrected the severe over-valuation of UK houses, made a second correction inevitable, but even now, when there is mounting evidence to suggest we are in it, many analysts still believe that the market can survive.

Take the last Halifax index for July; the Halifax housing analyst Martin Ellis said that while increased supply from things like the abolition of HIPs had relieved the upward pressure on prices, that low interest rates, and the economic recovery, by underpinning demand, would support the market sufficiently to keep the line flat rather than down.

That said: Halifax found a 0.8% increase in prices, compared to Nationwide's 0.5% decline and also highlighted a 2% rise in mortgage approvals. With mortgage approvals now falling according to the British Bankers Association, demand could prove to be less underpinned than Mr Ellis thought. Further, the economic recovery, another factor mentioned by Ellis is looking less peachy than it did a few months ago.

We are struggling to bring inflation down, and struggling to get growth up. With the austerity incoming, can we really expect growth to accelerate? If all that weren't bad enough we have millions of job losses to come in the public sector, which will undoubtedly affect jobs in the private sector, as the newly unemployed or job-fearful cancel building work and leave the car service for a bit longer.

All in all there is more reason to believe we are in for a house price dip than there has been since 2008, and, as we all know, that is saying something.

But of course, we have been here many times before; with me and countless others continuing to provide countless reasons why a second dip was just around the corner, and all the while that dip never coming. Time will tell if this time is indeed any different.

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