Surveyors predict house prices this year will end higher than in 2008

Published 06th Aug 2009

The Halifax's measure of the longer-term trend, which compares house prices in the past three months with the previous quarter, turned positive, for the first time since the autumn of 2007


Britain's housing market is emerging from the doldrums, and prices could end 2009 "slightly higher" than last year, according to a report from surveyors which points to growing evidence of a bounce, but warns that, "caution is still the watchword".

The Halifax today reported that house prices increased by a larger than expected 1.1% in July, while its measure of the longer-term trend, which compares the past three months with the previous quarter, turned positive, to 0.8%, for the first time since the autumn of 2007.

Tomorrow, the Royal Institution of Chartered Surveyors publishes its latest quarterly housing outlook, and instead of the 10-15% fall in prices it had previously predicted, it says, "it now looks likely that the average house price in the fourth quarter of 2009 will be slightly higher than in the fourth quarter of 2008."

Following three successive increases in prices on the Nationwide index, and a gradual recovery in mortgage approvals, there is mounting evidence that after 20% was knocked off the value of the average house in 18 months, an upturn is now underway.

As the Bank of England prepares to announce whether it will extend its radical policy of "quantitative easing," beyond the £125bn already spent, the outbreak of optimism about the housing market will strengthen hawks on the nine-member committee, concerned about unleashing inflation when recovery comes.

Many City investors are expecting the Bank to announce a pause in its programme of buying back government bonds, or gilts, to release money into the economy – though there are fears that calling a halt would lead to a sudden sell-off in the gilt market, driving up interest rates.

Danny Gabay, of consultancy Fathom, which held a "monetary policy forum" with academics and policymakers , today, warned that any rise in mortgage rates, as the Bank turns off the cash taps, could choke a housing recovery, with a knock-on impact on Britain's banks.

"The elephant in the room is the huge contingent losses sitting on UK bank's balance sheets, which are directly linked to the UK mortgage market.

"The losses incurred by UK banks so far have been largely due to the performance of the US market; but the next wave of write-downs will be made in the UK," he said.

Professor Charles Goodhart, who was a member of the first MPC in 1997, said he was not yet convinced recovery is solid enough to merit withdrawing "QE,".

"Personally, I would not draw a halt to QE, but instead would expand it in the short term by another £50bn, spent in equal amounts over the next three months," he said.

Despite the positive data of recent weeks, both Halifax and RICS expressed concerns about the sustainability of the housing recovery, which has been exaggerated by the small number of homes changing hands.

Martin Ellis, housing economist at Halifax, said: "higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support house prices over the past few months."

The RICS report warned that, "there is still a danger of prices slipping back again in 2010," and insisted that, "caution is still the watchword" in the coming months.

"It is not clear that house prices have reached a bottom. In the current market, limited supply is at least as important as improving demand as a determining influence on house prices," it said.

It adds that the short supply of mortgages is likely to put a dampener on demand for some time.

In the fourth quarter of 2007, 15% of all mortgages were worth more than 90% of the property's value, RICS says, while in the second quarter of this year, that had contracted to just 4%. "In other words, there are few mortgages available and higher savings are required to secure one. These restrictions on mortgage lending are seen to create particularly challenging circumstances for first time buyers."

Source: ' Guardian '

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