Worst of UK House Price Falls Over - Yeah Right

The UK housing market has bottomed out apparently. All the bulls have had their prayers answered; David Miles, a policy maker for the Bank of England has said that he thinks the UK has seen the worst of the house price falls.

Addressing a Treasury Select Committee on his appointment to the interest rate-setting Monetary Policy Committee, Miles said:

"Expectations are crucial in the housing market and they look a bit better now than a few months ago. My hunch -- and I put it no stronger than that -- is that we have seen most of the overall aggregate house price falls."

If I was his boss at the Monetary Policy Committee, I would have sacked him there and then. Anyone who is impartial on the housing market knows that you cannot call what we are seeing now a definitive bottom. The bottom of a market happens when the gap between what sellers are willing to pay closes with what sellers are willing to reduce their price to, and is indicated by a massive upsurge in sales transactions, which then pushes prices up.

There has been no massive upsurge in transactions. The current price stability and even rises are entirely fuelled by the massive supply shortages that we are currently faced with. That makes it very vulnerable to increasing supply which would cause the sharp price drops to begin again.

On top of that property is still not affordable to first time buyers. During the last major correction house prices fell until the average mortgage repayments were under 50% of the average first time buyers' salary. The average mortgage repayment is currently over 90% of the average first time buyers' salary.

Then you have the fact that unemployment is still rising, and that asking prices are still 40% higher than sales prices according to Rightmove's index of asking prices. Vendors are still unrealistic, according to Joseph Harwood, director of Gloucester property investment firm Rock Star.

The current price stability is as a result of low supply. And it is not so much low supply as low supply of realistically priced houses. Certainly in Gloucester most people are still asking far too much for their property. If more people were realistic, and I mean really realistic, we might be able to get the last of the price drops over with and find a real bottom," he said.

There is a possibility that UK house prices may not fall by a great deal from here. If supply remains as low as it is until the economy recovers, but that is highly unlikely.