Will the Current Stability be the Start of UK House Price Recovery?

I just read an interesting article on the blog of private property sales site Zungalow.com, on how the current upward pressure on UK house prices could turn into the beginnings of a recovery -- it blew my mind actually.

The two major indices of the Halifax and Nationwide have reported a 2% increase in house prices since April, (Nationwide 2.1%). Nationwide has been the most positive with its tri-monthly measure having turned positive for the first time since December 2007, when it reported a rise in price in June. But even the Land Registry index as well as that of the government have reported that the rate of decline has slowed massively over the last few months.

As usual I have been advising caution about viewing the current price situation positively, because it is fuelled by only a moderate rise in activity from very low levels, not the major increase you would expect if the market had bottomed, but, couple with the current drastically low stock levels, enough to put upward pressure on prices.

Thus, the current stability and even growth in UK house price has been very vulnerable to an increase in supply, which was being made more likely by the price rises. I had become stuck in a negative rut, and I was absolutely sure that prices would fall again when supply increased, which I believed was inevitable.

The Zungalow post stopped me in my tracks, the writer says: But is the positive news likely to make the holders sell now? When you think about it calmly the answer is no, not really; these people don't want to sell because of the losses they face on their property, the 2% increase barely bites into the 20% loss we have seen so far.

It is true, the slight rise we have seen is unlikely to be enough to bring the sellers out in their droves. I don't agree with the full length of the post however, as it then goes on to say that the positive news may bring buyers out in their droves, pushing up prices, which may then up supply and begin the recovery.

I don't believe this because, the problems, mentioned in the Zungalow post as capable of stunting their scenario, are in my view likely to do so. I believe that the lack of mortgages, spiralling unemployment and the fact that too many vendors are still unrealistic will prevent the upsurge in buyers as laid out in the post.

But this would not only continue the current status quo, with neither supply nor buyers increasing, which is overseeing price growth. Who knows how long short-supply can continue to cause prices to rise, long enough to keep us going until the recovery begins. Not according to Joseph Harwood of Gloucester property investment firm Rock Star, who believes that unrealistic vendors, by worsening the supply shortage could end up worsening the crash, he said:

"People are talking about supply shortages, but if you look on Rightmove you can find hundreds of properties for sale, it's just that none of them are realistically priced. Look at Gloucester on Rightmove, and you will see hundreds of properties, but with the exception of a couple they are still at peak prices. You won't get a recovery until sellers realise this is a severe correction that will not end until prices are actually corrected, which means sellers actually dropping their prices."

He makes a good point, and I think that is why I am abject to view any news positively, or go for the Zungalow scenario; because deep-down I believe this correction is based on the fact that house prices became too over-inflated and first time buyers were priced out of the market. So, as I know that houses still aren't affordable to first time buyers, I know that the correction is not over.