UK House Prices: Second Correction Looking More Likely

Well, just when I was about to give up on the idea that a second crash was going to come about in the UK housing market, the first sign that it may be starting have emerged. Some of you may be thinking that I am talking about the indices of the Halifax and Nationwide, both of which recorded significant price falls for February, or the fact that mortgage approvals fell in January, but you'd be wrong.

The most significant finding came from the Royal Institute of Chartered Surveyors, which said that the number of people selling their homes rose more quickly than the number of buyers for the second consecutive month.

No one has even tried to deny the fact that it was weak supply that tipped the supply/demand ratio in favour of demand, and pushed up prices. While demand had risen only slightly from historic lows when price rises began, and continued to rise at only very marginal levels as long as they continued. Supply remaining subdued during this time kept pushing up prices.

Now it looks as though the supply/demand ratio may tip in favour of supply, which has long been predicted as capable of heralding a second correction in UK house prices.

I don't know very many impartial observers that weren't surprised when house prices started to rise last March. We quickly realised that it was not a bottom, by the traditional meaning anyway, but that the national average price was being pushed up by people paying significantly more for quality properties in areas where supply fell shortest -- mainly in the south and south west of England.

There is equally little doubt that if supply continues to grow faster than demand then this will put increasing downward pressure on prices. Because homes in the UK are still not affordable for the majority of people, and because of the constraints in the mortgage market this downward pressure could easily herald a second and even equally severe correction.

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