UK House Prices: What Will Spring Bring?

This spring should be an interesting time for the UK housing market. Transaction volumes have been increasing slightly month-on-month since last spring, and, more importantly so have prices. The questions that will make it interesting are:

Will the traditional increase in demand happen this year, with prices rising, a still-restrictive mortgage market and government cut-backs looming?

And, if so, will it be enough to countermand the possible increase in supply?

As we all (or certainly most of us) are aware the rise in transactions has been fuelled by low interest rates, and the gradually increasing availability of mortgages,  and, less so by government incentives like the increase of the stamp-duty threshold.

Equally common-knowledge is the fact that the rise in prices has been fuelled only partly by the increases in transaction volumes, and mainly by the massive shortfall of quality property in several areas, which has caused price spikes in those areas, pushing up (skewing) the nationwide averages).

Thus, the biggest vulnerability the market currently faces as we go into spring is an increase in supply in those areas, which are mainly in the south and south west.

There is nothing to suggest a massive or even disproportionate rise in supply in those areas. Sales however, traditionally do increase as we go into the spring, and if this happens then prices should continue to rise.

That being said: we are still in a recession, and we are still heading up to an election in which whoever wins is going to have to make cutbacks. We are also in a stimulatory environment with low interest rates that have to rise sooner or later. Mortgages are still very hard to get, and affordable ones even harder. With all those things to contend with will sales really increase as much as they normally do this spring?

At the same time and for the same reasons supply might tip on its head and increase this spring: in the areas where prices are rising, the growth is a powerful motive to sell, not to mention the people who have and are escaping the negative equity trap. The government cut-backs could bring an increase in forced sales. and the continued unemployment problems are likely to cause continued repossession problems. All of these things mean a rise in supply cannot be banked on.

fact the only thing that can be banked on is that nothing can be banked on. That is why spring is going to be an exciting time for observers, and a nervous time for those with a vested interest in rising house prices and increasing positive sentiment. What will spring bring?

Update 27/02/2010-09:48 - Nationwide released their index for February yesterday, which showed prices having fallen 1% on a monthly basis. This was the first fall in that index in 10 months.

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