Nationwide's house price index for January was up 1.2%. This showed a gain of 8.6% year on year. If property values rise again in February, annual house prices could move into double digit territory. The current environment might feel a whole lot better today than it did this time last year, but I believe we should not become complacent and look through rose tinted glasses.
Wage growth has been at a record low and this is likely to affect affordability for property. The affordability index, which measures the ratio between house prices and household incomes, is still above the long term average of 4 times income. It is currently 5.7. This means that on average many individuals are still overstretching themselves suggesting the recent rise in house prices could be a false dawn.
Interest rates are at historic lows, and while this is good for homeowners, they are unlikely to go lower than current levels (0.5%) to help ease the affordability issue. The bitter truth is that whilst interest rates have fallen significantly since the property market peaked in 2007 the banks have not lowered interest rates on their mortgages to the same degree. This means the cost of servicing mortgages is still high compared to the current base rate in the UK.
We also need stronger evidence unemployment is stabilising or falling which is another reason to doubt the sustainability of the recent rise in house prices. Basing the unemployment figures on one or two month’s data could be premature in my view and we need solid signs of improvement in this area.
The recent rise in house prices could therefore be a red herring. I believe 2010 is going to be a difficult year for the UK economy. Our national debt weighs heavily on the UK economy, particularly during a general election year, which is likely to prove unpopular for Labour. This debt has also been a major cause of the weak sterling and until there are concrete signs of lowering this debt, I cannot see the economy picking up. Once these cracks deepen, it will feed into the rest of the economy and the housing market may stall again. We are not out of the woods yet.
Wage growth has been at a record low and this is likely to affect affordability for property. The affordability index, which measures the ratio between house prices and household incomes, is still above the long term average of 4 times income. It is currently 5.7. This means that on average many individuals are still overstretching themselves suggesting the recent rise in house prices could be a false dawn.
Interest rates are at historic lows, and while this is good for homeowners, they are unlikely to go lower than current levels (0.5%) to help ease the affordability issue. The bitter truth is that whilst interest rates have fallen significantly since the property market peaked in 2007 the banks have not lowered interest rates on their mortgages to the same degree. This means the cost of servicing mortgages is still high compared to the current base rate in the UK.
We also need stronger evidence unemployment is stabilising or falling which is another reason to doubt the sustainability of the recent rise in house prices. Basing the unemployment figures on one or two month’s data could be premature in my view and we need solid signs of improvement in this area.
The recent rise in house prices could therefore be a red herring. I believe 2010 is going to be a difficult year for the UK economy. Our national debt weighs heavily on the UK economy, particularly during a general election year, which is likely to prove unpopular for Labour. This debt has also been a major cause of the weak sterling and until there are concrete signs of lowering this debt, I cannot see the economy picking up. Once these cracks deepen, it will feed into the rest of the economy and the housing market may stall again. We are not out of the woods yet.
