Best Financial Markets Analysis Article UK house prices rose for fourth month in a row according to Britain's biggest online estate agent, Rightmove. House prices surged by 2.4% for the month to 9th May, which takes average house prices on Rightmoves index to £227,441, down 6.2% on an annualised basis.

UK house prices are being lifted by lack of supply of properties on the market which were at just 61,000 compared to 135,000 a year ago.

Miles Shipside, Rightmove's commercial director commented:

“The long term worry is that the supply side of the housing market is now compromised for several years to come. Developers have shed much of their workforce so could struggle to increase capacity, and we are now seeing the lowest number of new sellers of second hand homes for the month of May since 2003.

Many people who might have wanted to take advantage of the spring selling season to trade up will be victims of equity immobility. The choice of when and how to move is now out of their hands. While some of the impetus behind the increase of over Â£5,000 in average asking prices will be due to ambition or optimism, it will also be out of necessity as new sellers attempt to scrape together enough equity to move.”

“Equity-poor home owners are either not coming to market, or are having to price too high. The scale of the problem is potentially far worse now than in the 1990s downturn, as re-mortgaging activity was then in its infancy having been strictly controlled until the deregulation of mortgage markets in 1986. It took off when in 2001 when lenders seemed to lose all sense of prudence, and there followed eight years of equity abuse that eroded the cushion that a decade of rising house prices had built up. This is one of the factors restricting the volumes in the housing market, and will only be resolved by affordable mortgage products at higher loan-to-value ratios or substantial increases in property values. It is impossible to put a timescale on this”

Rightmove's data follows similar positive UK housing market developments as observed in recent RICS data which showed 70% of surveyors report a surge in new buyer inquiries.

UK House Prices Forecast

The unfolding bounce in UK house prices prices is inline with my recent analysis that concluded that UK house prices will experience a bounce during the summer months from extremely oversold levels as a consequence of liquid buyers returning to the market which 'should' be reflected in rising house prices during the summer months that undoubtedly will increasingly be taken by the mainstream press to conclude that the house prices have bottomed.

So yes, UK house prices will perhaps moderate towards a 2009 decline of -10% (Halifax data) from the forecast of -16%, however the downtrend is expected to continue for many more years at a shallower pace as the housing market depression will see house prices drift towards the forecast for a peak to trough contraction of approx 38%.

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By Nadeem Walayat
http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

S Luther
29 May 09, 05:06

Supply and Demand

Nadeem, thank you for your excellent analysis both on the markets and housing. i've been reading all of your work wiht keen interest, particularly since you picked the bottom of the market (which sadly I missed!).

My wife and I are currently looking for a family home in the London area. Following analysis from Roger Martin-Fagg and yourself I confidently announced that we weren't going to jump until mid 2010 at the earliest. However, I've been keeping in touch with estate agents in various neighborhoods in London scouting for bargains and it seems that demand for family homes in London is far outstripping supply with the effect that there is already very little difference in the prices of family homes in many areas of London vs. a year ago. Further, we are reading continually that the US housing marketing will keep falling given the oversupply of homes on the market (easy to understand given the lack of building regulations in the US). Gordon Brown says that this same dynamic won't affect the UK market given limited supply (which is at least true in London).

Can you comment on the effects on the low supply of homes (perhaps particularly in London but also generally in the UK) and your view of how the US and UK experience will differ based on divergent supply / demand market characteristics.

Thank you!

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