Nationwide reports signs of life in the housing market

House prices climbed by 1.2% in May, says Nationwide - but it reckons there are more falls to come.

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Last Updated: 31 Aug 2010

House prices inched up slightly in May, according to Nationwide’s monthly report – which some will see as another sign that the market’s precipitous decline may be starting to bottom out. Prices are now just 0.5% lower than they were three months ago, the smallest quarterly drop for 18 months. But homeowners shouldn’t get too excited: Nationwide reckons there’s every chance this could turn out to be a false dawn...

So why are prices up again? Well, as ever it comes down to supply and demand. As houses become more affordable, it looks as though a few buyers (i.e. those with enough cash for a deposit) are being tempted into the market – figures from estate agents suggest a slight rise in new buyer enquiries (although they may just be talking it up). But supply has also become a factor: housebuilders have been cutting back so there are fewer new homes, while many potential sellers are deciding to stay put for a few years in the hope that prices will go up again. Less supply and more demand equals higher prices.

However, this is unlikely to last, says Nationwide. For one thing, many of these frustrated sellers are choosing to rent their houses instead of selling – which is increasing the supply of rental properties, and thus driving down rents. As more of these ‘reluctant landlords’ lose their jobs or see their income shrink, they may not be able to withstand these lower yields and be forced to sell up, thus increasing the supply of houses on the market. At which point prices will probably go down again. So first-time buyers still hoping to get on the ladder are unlikely to have missed their window yet.

What seems certain is that the market’s going to remain volatile for a while yet – this month’s rise follows a fall in April and a rise in March, and we’re likely to see more of the same as the year goes by. As Nationwide points out, in previous recessions there were several months when prices rose only to promptly fall back again, so there may yet be worse to come (or better, depending on your point of view).

Still, at least the steep price drops of the last year seem to be a thing of the past – which suggests the market is at least stabilising a bit, and possibly even nearing the bottom. For the stability of the economy, and general consumer confidence, that has to be a good thing.



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