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House Prices Level in November – the Eye Before the Storm?

December 12, 2010

The Halifax has announced that property values stayed fairly static on average over the United Kingdom in November, dropping by only 0.1% and encouraging a little optimism that the property market is bottoming out. The Halifax data arrives fresh on the heels of Nationwide’s index which measured property prices as having raised marginally by 0.4% in November.

But may this simply be the ‘eye of the storm’, and should all of us be expecting additional property price decreases in 2011?

Well the general opinion appears to be that people ought to assume additional falls, however the views about the degree of the falls anticipated in 2011 differ significantly.

Howard Archer of IHS Global Insight said, “The 0.1% drop in house prices in November reported by the Halifax is consistent with our view that house prices will trend down gradually overall to lose around 10% from their peak 2010 levels by the end of 2011?”. If this really is accurate, this needless to say implies that property prices have got approximately an additional 7.5% to drop during the following year.

Even though a 7.5% fall is unquestionably far from insignificant, it pales when compared with the forecasts of some people who believe property prices may possibly drop 20% during the next 18 months, from their 2010 peak.

Based on the Halifax index, property prices actually peaked at £169,484 in January 2010 and have since fluctuated throughout the year, but overall have fallen by 2.8% to £164,708 in November.

The reason why property prices appear to have stabilised presently is the fact that supply is down, with home owners apparently more hesitant to place their properties on the market. But, if supply (sellers) begins to grow once more in 2011, with no accompanying rise in demand (buyers), we might start to see the return of a strong buyers market with sellers pressured to drop the price of their property if they genuinely want or need to sell.

The Government spending cuts, and connected job losses kick in during the course of 2011, and will certainly have an adverse effect on the economy in general, and not least the housing market, with an anticipated knock on effect being further forced sales and repossessions each of which will certainly act to drive property prices down.

So the best advice for first time buyers appears to be to hold off for the time being, and wait to see what happens. Further house prices falls might be coming, possibly allowing you to save more than 7.5% on present property prices if you time things right.

There will undoubtedly be an ‘ideal’ time, some time, when first-time buyer mortgages return to more competitive levels, particularly in respect to higher loan to value mortgages such as 90% LTV mortgages – with house prices at or near the bottom of the cycle. You may then be able to pick up a property at a bargain price, and secure an attractive mortgage deal reducing your costs of property ownership.

12th December 2010

Written by Richard Best

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