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House Prices - Will They Rise Or Fall In The Coming Months?

By: Steve Jackson

People in the UK like to own their own property. There are many reasons for this but one thing is clear, everyone is interested in the value of property. Since the height of the property boom in November 2007, property values across the country have fallen by 20%. With commentary about improvements in the economy abound and claims that the recession is over, the question on many people's minds is have house prices also reached the bottom?

There are of course conflicting views about the next direction for house prices. The National Housing Federation (NHF) predicts that house prices will continue to fall in 2009 to equal a total reduction for the year of 12% and then drop a further 4.6% in 2010. They also predict that homeowners who purchased their properties in the 2007 peak could remain in negative equity for a further 5 years.

However, the Royal Institute of Chartered Surveyors (RICS) have predicted that house prices will follow the recent trends found by Halifax and Nationwide which reported house price rises in July (the third monthly increase in 2009). With such conflicting predictions, it is extremely difficult to make sense of the housing market and agree whether these rises are sustainable.âEUR¨âEUR¨To try and understand which way prices may go, it is important to look at the causes of house price activity. The recent increase in house prices (especially in the south east of England) may well be due to the severe shortage of supply. The number of new properties coming onto the market has reduced each month for the past 26 months. People who want to sell are holding off until prices improve either by staying put or renting out their property.

Arguably these recent increases have occurred in affluent areas fuelled by people who have available cash to invest and feel prices have little further to fall. However, although there may be pent up demand for property, this will only push up prices across the board based on the availability of money. The reason for this is that in today's credit crunch money market, the traditional laws of supply and demand do not ring true. Demand can only be satisfied if there is money available to pay for this. As such, although interest rates are at an all time low (average rates are down from 6.9% in October 2008 to 3.8% now), mortgage finance is still relatively hard to come by.

To fuel a fire of sustainable house price increases, the economy needs first time buyers to step back into the market. This allows sellers to move up the chain into more expensive properties. However, with many lenders requiring deposits of 25% or higher, many first time buyers are unable to take advantage of both lower house prices and interest rates and remain locked out. In addition, although economic indicators may start to show economic growth, companies are continuing to cut back to maintain this positive position. As such, unemployment levels may not start to fall any time soon. Clearly if people's income is under pressure, the last thing on their mind will be moving into a more expensive home.

Whether you believe that house prices have hit the bottom or still have further to fall, the recent rises do indicate that the outlook is brighter than twelve months ago. However, as always, it is important to look at the regional picture. Although RICS has stated that prices are increasing in London and the South East, prices remain depressed in Wales, Yorkshire, Humberside and Northern Ireland. The economic cycle may have reached the bottom and be on the way up, however, trying to predict the housing market is very risky and so therefore is basing your home buying decisions on what might happen.

About the Author

Steve Jackson is a debt adviser from BeatMyDebt.com in the UK. For more quality and unbiased information on Personal Debt Solutions, visit our website at www.beatmydebt.com

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