UK Property: Housing Market Recovery Hinges on Three Things

It is has become apparent that the UK housing market recovery is dependent on three things, all of which are going to take an indeterminate amount of time to resolve:

1. sellers realising that it is a buyer's market, and they must drop prices in order to sell
2. The UK economy recovering relieves the job worries faced by millions and thus creates more buyers

And:

3. The UK lenders policies returning to normal, which may or may not be achieved by the time the economy recovers

No one of those things is any more important than the other:

• The lack of mortgages is unimportant because very few people are looking to buy houses.
• The lack of buyers and mortgages is also prolonging the time it takes for sellers to realise they must drop prices, as they blame it on the lack of mortgages and buyers.

This week Rightmove revealed that property asking prices have rise 0.9% this month, because agents are inflating asking prices to entice sellers, before negotiating price drops from there. This is doing nothing but prolonging their own misery.

But when all three come together: The UK economy shows that it is clearly getting back onto its feet, more people start actively seeking to buy homes, the increase in sales and falling unemployment sees gradually loosened lending strings, and sellers are left with the fact that only their asking price is keeping them from selling.

The price drop we have already seen, around the 20% mark, could well be enough if all sellers were to drop to that figure, and mortgages were made more readily available. But while sellers are unrealistic and mortgages tight, more price drops are likely.

As I have come to the realisation above, I have become less optimistic of the housing market bottoming towards the end of this year. I still think it is entirely possible, I am just not as optimistic as I was a few weeks ago.

The EC forecasts the UK's budget deficit will reach 5.7% this year and 5.9% next year, which shockingly means the Euro rejection is no longer our choice; the Euro would reject us. Countries wishing to take on the Euro must keep their budget under 3% for a year before they plan to take the Euro as their currency.

The UK economy as a whole is in worse shape than many of Europe's less established markets including those new to the EU. The EC does still predict a slow economic recovery for the UK in 2010, but whether the property market recovers along with it depends on how quickly the bank's lending policies change.

If I was put on the spot, I would now say that UK property prices will not start to grow regularly again until Q3 2010; maybe a 2-3% growth in 2010, and possibly a 3%-7% rise in 2011.