Are prices rises a false Dawn?

An economic forecasting group has warned that the recent rise in UK house prices is a "false dawn". The Ernst & Young Item Club says property values will not return to their 2007 peak for at least another five years. This of course is the same team who so notably failed to see the world wide recession coming and missed the credit crunch and one could argue that they are keen not to miss out again. However the latest figures from mortgage lenders show a continued revival in lending to house buyers.The number of loans granted for house purchase in July was 19% higher than in July last year. Remember, this lending is indicative not of the market in July, but the acceptance of offers from increased activity in June.

So, is this really a national false dawn? No - its a bounce where many people who were waiting are now buying properties before prices rises become more sustained. Ironically, its the same media sources who have fueled these feelings reporting all the good news and often without qualification. These rises wont happen in any dramatic fashion immediately, but most people have the foresight to realise that as they will probably retain ownership of the property for more than a couple of years, what happens in the interim is pretty much academic. Afterall, you neither lose nor gain until you realise your investment. Look at the 1990's. Those who still own their homes from before the last crash haven't done too badly even after the latest one.

In terms of long term growth, there has never been a better time to buy. Due to the competitive mortgage rates, a large number of people are moving up market and buyers forced into rented through lack of confidence are re-thinking their positions before the spectre of affordability looms again. Vendors are already beginning to ask whether they need to revisit asking prices as interest in their properties increases.

Whilst the mantra of supply and demand is indeed true, a number of properties which were previously unsold and which were rented are becoming available. The stagnant new homes market is becoming resurgent and idle sites are now the subject of a frenzy of activity. Bushells has acted for one developer in the acquisition of over 110 units. The first 4 developments were rented out, but the next 3 have already been the subject of enquiries from buyers and investors.

Prices in London have been creeping up, but not necessarily in terms of the price being asked. More pertinent is the closing in the gap between the accepted offer price and the initial asking price.

We will see a decline in activity in terms of units and prices reported in the early part of 2010 and undoubtedly this will be seized upon by Robert Peston and his friends as proof we are entering another cataclysmic decline. These are the same people who in October 2008 predicted a collapse of biblical proportions in excess of 30%, yet according to the Land Registry, the actual fall in London was less than 13% from June 2008 until June 2009. This is nothing new. In October 2003, the BBC reported that House prices were set to fall by 20% over the next 18 months according to Capital Economics. Isn't hindsight great.

But enough of the past. The advice from Bushells is if you are in London - don't worry when the first quarter of 2010 appears to support the pessimists. This is the result of a phenomenon as familiar and predicable as the full moon. We call it Christmas.

The truth is, the statistics are unarguable as a national average but do not show regional variances. We know what is happening in our areas and we are confident that seasonal trends aside this growth is sustained. Of course there will be the odd peak and trough but that just serves to keep it interesting.

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