House prices - on their way up?

Last September, the `average` house was valued at around £161,800*. Prices were on the way down, and kept falling for another five months - reaching an average of £147,700 in February - before starting to climb again.

This September, the average house was again valued at around £161,800, giving us an annual change of 0%. The last 12 months, in other words, have seen house prices move down and up again in a `V` shape, leading many to hope that prices were on their way back up and that all the fears of negative equity and a `house price crash` had been blown out of proportion.

Is the worst over?

Nonetheless, experts are warning that this doesn`t mean the `crash` is over. Nationwide`s own Chief Economist, Martin Gahbauer, has warned that `it would be surprising to see house prices continuing to increase at the very strong rate seen in recent months`.

Mr Gahbauer did, however, suggest that `the most intense phase of the recession and financial crisis has probably passed`, since all kinds of `economic and financial indicators` had started looking healthier in recent months.

Some of the recent growth in house prices, though, was due to the limited numbers of properties on the market - fewer sellers, of course, means there`s simply more competition among buyers for each property that is on the market.

The average price might have recovered since February, but it`s still a long way down from the £186,000 it reached in October 2007, and many people are reluctant to sell if they don`t have to.

And today`s low base rate (0.5%) means a lot of people who are suffering financially from the recession are still able to afford their monthly mortgage payments. So the market hasn`t been `flooded` with properties being sold by people who had no choice.

Does everyone agree on prices?

The Nationwide House Price Index isn`t the only one. Since this time last year,

• The Rightmove House Price Index calculates that prices have dropped by 1.5%.
• The Halifax House Price Index calculates that prices have dropped by 7.4%.
• The Land Registry`s House Price Index calculates that prices have dropped by 9.4%.

The different organisations carry out their measurements in different ways, so it probably makes sense to look at what they`re all saying.

Does everyone want the same thing?

Finally, it`s wrong to assume that everyone wants the `crash` to be over anyway!

• Sometimes, it`s easy to guess how different groups will feel:
  • Homeowners who think they might need to sell soon will be very worried to think prices are about to start falling again - especially if they`re in negative equity.
  • Would-be first-time buyers, on the other hand, are pleased when they see prices coming down, as it gives them a better chance of getting their foot on the property ladder (assuming they can get a mortgage).

• And sometimes it`s not so straightforward. Someone moving `up` the housing ladder might actually be pleased to see house prices coming down. Why? They could be better off if the price of their old house and the price of their new house both drop by 10%:
  • They`ll be disappointed to get £10,000 less than expected for the property they thought was worth £100,000, but
  • They`ll be pleased to pay £20,000 less than expected for the property they thought was worth £200,000.

In other words, they`d be £10,000 better off than they would have been if prices had remained stable.

When it comes to house prices, no-one knows what lies ahead. One thing we do know, though, it that some people will like it - and others won`t.

* Prices are taken from the Nationwide House Price Index (unless otherwise stated) and rounded up/down to the nearest £100.

Tags: house, prices, rise, mortgage, Nationwide

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