Recent Rises in House Prices are Not Sustainable, According To Experts
During the last six months, we?ve seen house prices rising substantially for the first time since 2007, which many have heralded as a sign that the economy is beginning to recover and the housing market will eventually rise back to its former glory. However, experts are now warning that the rise in house prices is only a temporary situation and homeowners should expect prices to fall again shortly.
A report from Nationwide suggests that house prices have risen for the fourth consecutive month in August, along with other figures which all sound like signs of a recovering market:
- The average price of a house rose by 1.6% during August
- Average prices have increases a total of 3.3% between June and August
- Overall, during the first eight months of this year, prices have increased by 3.2%
- The value of a typical property is ?160,224 which 14.4% below the October 2007 peak.
Even the British Banker?s Association has reported a massive 77% rise in mortgage approvals between July 2008 and July 2009, but despite what sounds like a huge jump on paper, approvals remain at an historic low, and financial experts predict that the relative buoyancy on the market isn?t set to continue.
A key sign can be found in house builders remaining wary of the market. Bovis homes reported a ?8.6 million loss during the first quarter of the year, noting that increased mortgage lending is still far behind ?normal? levels. The company adds that the industry faces many threats, including unemployment, the increased supply of property and the future for interest rates.
Lenders are still a long way from backing any large scale increase in the level of mortgage activity as they seek to recoup their loses. Michelle Slade, spokesman for Moneyfacts stated:
?Margins continue to be increased as lenders look to repair dented balance sheets. Normal rules where lenders pass or decrease rates based on the cost of funding seem to have well and truly gone out of the window.?
The low base rate has seen a huge drop in mortgage payments for many homeowners, which has lead to less properties being made available and creating a sellers market due to demand. However, this situation can only be maintained as long as the interest rates remain at a historic low. When interest rises again and mortgage payments once again become a problem for people, we could see the rise in house prices stall completely.
?It’s not difficult to explain why the improvement in housing market conditions may only be temporary,? said Sheena Shah, property economist at Capital Economics. ?After all, not only is the economic backdrop still weak, with the rise in unemployment showing little sign of coming to an end, but lending criteria remain a significant obstacle to buyers.?