UK House Prices may be Flat in 2010 but the Market will certainly be Rocky

UK house prices rose at their slowest rate for 6 months in January. According to the Halifax index, prices were up just 0.6% on the month in January, slower than the 0.8% in December, and from 1.2% in September.

This still leaves prices some 9.9% higher than they were at their April trough, and 3.6% higher than in January last year.

In the release, Halifax's chief economist Martin Ellis also gave the lender's forecast of a flat year for house prices in 2010.

"There are some signs that more people are putting their homes on the market. A further increase in the supply of property is possible over the coming months, which would help to curb upward pressure on prices. Overall, our current view is that house prices will be flat during 2010," he said.

This is a very sit-on-the-fence-ish forecast. It is easy to say the market will be flat in 2010, it is a nice safe prediction, given that this is what tends to happen after a severe correction/recession. However, the UK economy and housing market looks set to be a very rocky place in 2010:

Firstly you have the government tax changes due to take their toll on public sector employment, which may or may not be partially or mostly swallowed up by increasing employment in the private sector.

Then you have the increasing sentiment likely to make more people feel that now is the time to sell, an increase in supply would almost certainly apply downward pressure on prices

Also, the pound is likely to strengthen as the UK economy proceeds out of recession, this will undoubtedly lead to the exodus of foreign buyers

Finance still requires a hefty deposit, there is only a certain number of people who have or can raise such a deposit and these could start to run out in 2010

Wages won't be rising much this year either; so unless prices either fall affordability will remain a plague on the market

For these reasons I believe that prices are still looking at taking a second hit this year, but I could be wrong. My basic point is that there are far too many variables to predict with any certainty what will happen, we may as well draw predictions out of a hat than listen to forecasts from economists or pundits -- myself included.

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