House prices will grow by over 6% during 2010 according to one of the leading economic think tanks. Will they really? I wonder.
Home owners are probably all out dancing in the streets this morning, even though it’s pretty cold out there. A six percent rise in the value of their home this year – that’s amazing!
So lets think about it for a moment. House prices rose in December and the average value of our homes now stands at almost £162,000. So on average each home owner will be better off by £9,720 this year. That is £810 per month.
A house costing, say, £400,000 now will cost £424,000 by the end of the year. That is a £2000 per month appreciation.
This house price forecast is based upon an improved mortgage lending outlook with mortgage approvals predicted to reach around 72,000 per month by the end of 2010 from today’s level of around 60,000 per month, and will increase to around 90,000 per month by 2013.
This is still some way short of pre-credit crunch levels of mortgage lending, but will likely lead to a sustainable growth path for house prices over the medium term. In addition, cebr’s central forecast for interest rates is that rates will remain on hold at 0.5 per cent until mid-to-late 2011.
It all sounds very bullish for those who own property, but is this realistic? Are prices really going to shoot up so much as we emerge from one of the deepest recessions ever? I’m not sure.
In fact I think that this optimism is not being mirrored by what is happening on our streets at the moment. True, houses in our area are gaining renewed interest from buyers, and some are being sold now within weeks of being placed on the market.
But mortgages are still hard to get, particularly for buy to let landlords and those with credit impairments are being left high and dry by risk adverse lenders. It was buy to letters and those with credit problems who did give a substantial boost to the housing market in the years up to the peak in 2007.
Only those who can put down sizeable deposits and who have good credit records get affordable mortgages these days, so the number of people who may want to buy, but can’t has actually increased dramatically since the credit crunch, and that will continue for some time.
And then there are the home owners who see prices moving upwards and then think now is the time to sell their house too.
Its been the lack in availability of good stock that has boosted prices so far this year. As more stock becomes available, then prices will falter, unless more buyers step in, of course.
So as nice as a 6% boost in your house price sounds, I believe that circumstances will almost certainly create less inflation of property values, although they will still rise this year, in my opinion.