House Prices

Where I was raised, you either buy a house or you build one yourself in a community effort. The reason for this is quite simply to provide somewhere for your family to live. I know of houses in my village of Tarlungeni in Transylvania which were hand built by their families over 100 years ago and the thought of selling their houses would never enter their minds.

Here in the UK I constantly hear of people saying how they have made £30,000 on their house in 2 years. Complete nonsense. If you were to sell the house and then live in a forest in the trees then yes, you have made £30,000. But if you sell the house and buy another one, you are no better off except maybe your new house will have an extra 2 metres in the garden or a slightly bigger lounge.

House prices only have a little further to fall now, and should slowly start to pick up next year, according to the Centre for Economics and Business Research.

Some mad financial men earlier this year predicted that house prices could tumble by as much as 40 per cent from their £196,000 peak in the summer of 2007. But it now seems more likely they will decline by 28 per cent "peak to trough" by the time the housing market finally hits the bottom later this year.

By the end of 2013 house prices should have increased by 23 per cent to £170,000 from their predicted average this year of £144,000.

The improved forecast comes on the back of a series of more positive figures to emerge from the housing market.

The Royal Institution of Chartered Surveyors said last month that the number of potential buyers asking estate agents to look around properties had increased for five consecutive months.

But the CEBR cautioned home owners not to get carried away by the positive data, warning that house prices have a further 8 per cent to fall, as rising unemployment will cause increased number of people to sell their homes in a hurry.

Going forward, house prices are likely to remain in the doldrums for some time, as what is likely to be a slow recovery in the real economy translates into weak wage growth and stubbornly high unemployment – factors that will put a fairly heavy lid on house price inflation.

We may start to see stronger house price growth towards 2012 or 2013 as the huge downturn in new housebuilding over the past 12 to 18 months leads to significant under-supply over the medium term.

I would imagine the average cost of a home will increase by about 3% between the fourth quarter of this year and the final three months of 2010, followed by a further 2.5 per cent rise the following year.

But the house price growth is expected to pick up again during 2012 or 2013, with the average cost of a property recovering to £170,000 by the final quarter of 2013, up from a predicted £144,000 at the end of this year.

This will still be below the peak price of £196,000 that was hit during 2007.

Don't panic people, the prices will recover and this recession will soon become a distant memory, maybe.