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Are house prices going to rise?

Are house prices going to rise?

Asked on Apr 20 2011, General in Chelmsford | Report content

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  • Potential yes, probably yes, but always area dependent.

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    Answered on Apr 26 2011, Report content
  • To answer this question you need to understand what has driven the house price boom of the decade to 2007. With house prices rising far in excess of wages for this period the money had to be coming from another source. That source was ever increasing availability of credit. House prices do not work in the usual nature of supply and demand. You have to break demand down into two sections, conventional demand and credit availability as the average house buyer must use mortgage. When credit becomes more available and lenders become more lax with criteria and deposit levels, as they did pre 2007, then prices can rise very rapidly. As the opposite happens and lenders return to more sensible practices then prices fall back to a level that meets the new level of proceedable demand. Banks mortgage lending practices pre 2007 became very reckless and consequently once this level of debt became unsustainable they made huge losses and faced massive right downs on their assests. These losses still have not be completely realised as many banks are holding back repossessed properties from the market to avoid crystallising further losses. With the risks to the market still weighing very strongly to the downside banks are asking for much larger deposits to protect themselves from further fall. This obviously keeps a lid on demand. The lending practices we have at the moment are more normal then what we witnessed in the 10 years to 2007. So it's very unlikely that we will move back towards those practices anytime in the near future. Our current outlook for the future of the UK property market takes three different scenarios. 1, A robust economic recovery; in this situation we will see interest rates rise fairly rapidly to keep a lid on domestic demand and prices. This will dramatically increase forced sales and put strong downward pressure on prices. 2, Second recession; in this situation we would see an increase in unemployment a further fall in consumer confidence from it's already low levels and we would see a repeat of the price falls on 2008/09 with the exception that this time around there be no falling interest rates to arrest the falls. 3, Stagnating economy, This is the most optimistic view from a house price outlook, interest rates are unlikely to rise and unemployment stays stable. But in this situation we would have a high level of inflation as we have currently putting pressure on real incomes and damaging peoples spending ability. In this situation prices are likely to slowly fall, probably less than 5% per year. But when inflation is taken into account the real falls will still be in the region of 10% per year. In our opinion we don't see any sustained rise in house prices before 2017. Henry Chester. HPC Wealth Management

    Answered on Jul 10 2011, Report content

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