Housing market bubbling up again

by John Fitzsimons on 17 February 2010  |  8 comments
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Estate agents have got a spring in their step once again, but is this just the start of another house price bubble?

If you've been around an estate agent recently, odds are you'll have noticed they have a spring in their step, thanks to the positive sentiments currently circulating the housing market.

Just last week Rightmove, the UK's biggest online property portal, revealed there had been a significant surge in the amount of properties individual estate agents were advertising on the site. Estate agents pulled back on advertising online during the recession, so a reversal of this trend suggests they are now feeling more confident that more of their properties will sell.

And it's not difficult to see why estate agents are experiencing this boost in confidence. The National Association of Estate Agents has reported that despite the horrific weather conditions in January across the UK, sales by agents actually went up compared to December.

Demand is also rising healthily, with the number of potential buyers registering with agents jumping from 251 in December to 291 last month. Just to add to the positivity, sales to first-time buyers also rose, with the previously beleaguered group now representing almost a quarter of all sales.

In fact, the National Association of Estate Agents now believes fears about the housing markets prospects for 2010 "may prove unfounded".

Asking prices on the up

This confidence in the housing market looks likely to grow further in the short term. New figures, again from Rightmove, revealed asking prices have jumped 3.2% so far in February - the biggest rise since April 2007.

This follows surprisingly strong house price growth in 2009, with prices finishing the year 8.9% above their trough of February 2009, according to Nationwide.

Of course there is a big difference between asking prices and the price the property is actually sold for, but the signs are clearly there that the market is awash with positive sentiment from buyers and sellers alike.

• Adopt our goal: Sell your home.

A castle built on sand

So, now we come to the million-dollar question: Is this just the start of another housing market bubble?

Estate agents may be spinning a story of optimism and confidence but the fact remains, there are still an awful lot of jagged rocks on the horizon for house prices.

Interest rate rises

The simple fact is that interest rates are only going to go one way - up. Now, there may be plenty of talk that this won't be happening for a while yet, and that we have months (or even years) of Bank Base Rate at 0.5% still to come, but I'm not convinced that's the case.

Whenever base rate does start moving upwards, you can be certain that repossessions and arrears will follow.

It's not just interest rates that have been used to prop up the ailing economy either - quantitative easing helped too, but that has now come to an end, as has the temporary cut in VAT and the Stamp Duty holiday.

These stimuli that have boosted the nation's finances couldn't last forever, but the fact that they are all ending at once is something of a worry, particularly as with 0.1% growth in the last quarter (and that based on just 40% of the data), we are barely out of the recession.

Bear in mind that, just last week, figures from the Council of Mortgage Lenders revealed that repossessions had hit a 14-year high at 46,000. And predictions for 2010 are even worse, with repossessions expected to reach 53,000 by the end of the year.

I can't get a mortgage!

As if that wasn't bad enough, the perceived recovery in the mortgage markets may also be just a temporary blip. With Government schemes to help lenders coming to an end, the Council of Mortgage Lenders has warned that between 2011 and 2014 there is likely to be a £300bn funding gap.

That's not small change by any stretch - it's more than double the entire gross mortgage lending of 2009!

And that absence of funding will fundamentally change the mortgage market in the UK, possibly leading to the return to mortgage rationing.

I'm all for a bit of confidence and positivity in the housing market, particularly after the last few years, but there's still a long way to go before I'm anything but cautious about the future.

Get help from lovemoney.com

If you are concerned by the prospect of further house price uncertainty, and want to protect yourself from negative equity, there are plenty of things lovemoney.com can help you with!

First off, why not adopt the goal: Make home improvements

Next have a watch of this video: How to...get out of negative equity

And finally, why not pick the brains of your fellow lovemoney.com users in our Q&A section?

More: Escape the 12.55% mortgage! | Repossessions to jump in 2010

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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

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