House price optimism is probably misplaced

House prices have been slowly rising over summer, but it appears that this new optimism is probably short lived as property prices are likely to fall again in 2010.

The forest of for sale signs has slowly been replaced with sold boards and removal vans in our area as sellers have taken advantage of the renewed interest in the property market from buyers looking for bargains.

Once a house comes up for sale, it doesn’t take long for the buyers to come around and even put in offers as long as the seller isn’t being too greedy.

It almost feels that the property market is back to normal.

We have been reporting, though, that there are mixed signals in the housing market and these are probably pointing to impending weaknesses in the market.

However the recent price increases have been driven by a shortage of properties being placed on the market rather than an increased demand from buyers.  This is a problem for the house market in the coming months.

Unemployment hasn’t finished rising yet, and may even hit 4 million according to the TUC.  Even the Prime Minister is saying that the economy remains fragile.  Consumer confidence is still low, as you would expect if people are fearful of losing their jobs.

Until the economy gets stronger and the employment outlook stabilises, the property market will remain fragile.

And then there are interest rates.

Once interest rates start increasing again – which they will – mortgages will become less affordable and house prices will suffer as a result.

Taking these factors into account, the Ernst and Young Item Club is predicting that  house prices may not undergo sustained recovery until 2011 and will then need another three years to return to the 2007 peak.

In some ways, I find that outlook slightly encouraging.  If you can hold onto your house for another five years, then it looks like it will recover its 2007 value.

Property looks like it still is a good long term investment.

Would I consider moving up the property ladder now?  Actually, no I wouldn’t unless I absolutely had to.  This is probably a short term peak, so you’d be buying at the top of the market.

If I wanted to move up the property ladder, I would consider selling now, though, and then moving into rented accommodation.

Buying next summer could well be a very smart move, but until then its probably best to wait and see.

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