UK House Prices Still Growing - When Will it All Come Crashing Down?

I thought it was about time I put pen to paper with the latest news on UK house prices, well, rather my opinion on the latest news about UK house prices.

Still the growth continues, and the longer it goes on the more optimistic agents are that maybe, just maybe and despite of everything that would in a normal world prevent recovery, that this could be the start of a prolonged recovery. I am still sticking to my guns; there is going to be a second dip, and sooner rather than later.

According to Nationwide (generally the most positive) price growth slowed to 0.4% in October. This was still enough to turn price growth positive on an annual basis for the first time since last march; house prices are now 2% higher than in October last year according to Nationwide.

According to Halifax house prices grew 1.2% in October, leaving prices now just 4.7% lower than in October last year, but 2.9% higher than at the start of this year.

Prices are growing because of the massive shortage of saleable supply, and because demand has picked up slightly. In the best areas, where there is a serious shortage of quality family homes -- mainly in the south/south west -- prices are growing by huge margins as people fight for the best properties armed with only their wallets.

Thus, the current "recovery" is very fragile to two things.

1. 1: Supply increasing at a much faster rate than demand

   This could happen if the interest rate goes up, leaving thousands unable to pay their mortgage and facing repossession. This is also likely to happen if prices continue to grow in the good areas, and too many people start to think they too can get a good price. Rising unemployment could also have an impact here, as any major company putting thousands out of work and flooding its area with hundreds of repossessed properties.

2. 2: Demand falling, especially if supply increases for the reasons given above

   Of course the reasons given above that could cause supply to increase, are equally capable of causing a drop in demand. The other factor when it comes to demand is the fact that the weak Pound has and is bringing thousands of wealthy people from around the world into the UK in search of property bargains. If the Pound strengthens these will quickly evaporate.

And that is before I even mention affordability. When this correction began, I observed that if it was anything like previous corrections, it had happened because the percentage of first time buyers salaries being spent on mortgage payments had crossed the 100% threshold, and that prices would fall until that figure was closer to 60%. In Q2 it was at 93.6% and prices have risen since then.

Based on that, prices have between 9.7% and 40% left to fall before homes are affordable to the housing market's life blood. Read the article: Calculating the Past to Determine the Future of UK House Prices for a full explanation of this.

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