Four reasons why UK house prices will keep falling

Published ¤ 09/09/2009

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Yesterday saw another sign that Britain's housing market is bottoming out. Or so you'd have thought from some of the media coverage.

But on a closer look, the latest residential lettings survey from the Royal Institution of Chartered Surveyors (RICS) wasn't really that upbeat at all. And it certainly hasn't changed our view that house prices in the UK still have some way to fall.
UK house prices aren't in recovery
The way most pundits talk about Britain's property market, you could be forgiven for thinking that the drop in house prices over the past two years was a mere blip, and that there's nothing much to worry about for the foreseeable future.
Take yesterday's RICS survey. "Letting survey sign of recovery" was the way one headline reported it. That sounds good.

But not when you look at the actual figures. In fact, the supply of rental properties hitting the market was still rising during the three months through July. It was just doing so at a slower pace than in the previous three months, mainly because "accidental landlords" ? owner-occupiers who'd moved house but chosen to let rather than sell their old property ? are now planning to sell up instead.

In other words, tenants still have an increasing choice of properties, and remain in a "relatively strong" position compared with two years ago, says Simon Rubenstein of RICS. Rents might be falling at a slower pace then they were, but that's hardly a recovery, particularly with more houses threatening to come onto the market.
Expect UK home values to fall again soon
Meanwhile, there are several reasons to expect UK house prices to turning down again soon.

Firstly, with the benchmark base rate at a record low 0.5%, the next move in interest rates is bound to be up. It might not happen for some time, but when it does, the borrowers who've been surviving on the back of low loan rates will run into trouble again.

Add in more job losses, which are likely to rise even if the economy is technically emerging from recession, and another increase in repossessions and forced selling is on the cards. That will add more supply to the market - and help to push prices down again.

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MoneyWeek

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