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Which Way for House Prices? The housing market is at its most volatile level in years. November’s decision to leave interest rates unchanged at 5.75% is likely to continue to affect those struggling with variable rate mortgages, but what for the future of the housing market? House prices were showing signs of ‘cooling’ prior to the credit crunch in August, but others predict that the old laws of ‘supply and demand’ and the fact that the UK will continue to have a housing shortage for years to come, will ensure that prices remain strong. House prices, on average, are up 9-10% in 2007. An experts opinion on the housing market said: Fionnuala Earley, Nationwide's Chief Economist: “House prices recorded a surprisingly strong increase of 1.1% in October, tying it with June for the highest month-on-month growth rate so far in 2007. The average price of a typical UK property was £186,044 in October, £16,421 more than the same month last year. The annual rate of price growth picked up from 9.0% in September to 9.7%, but this is still down from a peak of 11.1% in June and was partly driven by base effects. The rise in the annual rate temporarily breaks the slowing in price growth we have seen since June, but is unlikely to mark the start of a new upward trend. November and December saw particularly robust gains in 2006, and unless prices perform very strongly for the rest of this year, the annual rate of price growth will resume a downward path. The 3-month on 3-month rate of price growth – which helps smooth monthly volatility – edged up only modestly from 1.7% to 1.9%, which is still below the average of 2.2% seen so far in 2007 “While some may be tempted to interpret October’s numbers as a sign that house prices are immune to deteriorating affordability and tightening credit conditions, such a conclusion would be misguided. Most leading indicators of housing market activity are continuing to weaken. Surveyors are reporting the weakest levels of new buyer inquiries in many years and mortgage approvals are falling from recent highs amid weaker demand and tighter lending criteria for riskier borrowers. Slowing demand, however, will not have an immediate impact on prices if homeowners are in no rush to sell.” Jeremy Leaf, Royal Institute of Chartered Surveyors (RICS): “Although house prices continue to fall, the underlying economy remains strong. A major correction in the market seems unlikely while economic growth is above trend and employment conditions remain buoyant. “The combination of rising interest rates, the introduction of HIPs and volatility in the financial markets resulting in tightening of lending criteria, has certainly affected the confidence of buyers and sellers. As a result, some would-be buyers are turning to the rental market whereas others, conscious that the next move in interest rates is now likely to be down rather than up and market meltdown is highly improbable, are seizing the opportunity to negotiate with more flexible vendors in a less competitive market-place." Robin Amlôt, Senior Editor of Moneyextra.com: “It’s becoming clear that the mortgage market peaked in May this year and was already on a down-trend before the summer credit crunch hit. A house price ‘crash’ remains unlikely but the rapid slow-down in activity in the mortgage market may feel like a crash to some. “The Bank of England’s five base rate rises to July 2007 are now really biting as fixed-rate mortgage deals arranged in 2005 come to an end. At the same time the credit crunch has caused lenders to tighten up their lending criteria and reduce the number of mortgages they offer. “It’s not all doom and gloom for some borrowers, those with blemish-free credit records can still take advantage of highly competitive interest rate offers. But life has become harder and significantly more expensive for the rest.” The Halifax: Strong economic fundamentals continue to support the housing market. Latest official figures confirm that gross domestic product (GDP) increased by 0.8% between Q1 and Q2, above its long-term average pace (0.7%). Employment continued to rise against the background of healthy economic growth in the three months to June with the total number 93,000 higher than in the previous quarter. The total number in employment stands at a record 29.1 million (Source: ONS) A sound economic background, together with an ongoing shortage of both new house building and second-hand properties for sale, should continue to support house prices.

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