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House price rise red herring

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The latest Nationwide house price review has shown a monthly increase of 1.6% in August 09, a fourth consecutive monthly increase, taking the average UK house price to £160, 224.

It is widely believed that the increase is attributable to a shortage of stock in the market as homeowners hold on for prices to rise to regain the capital they perceived to have at peak 2007 levels. Extremely low base interest rates have also eased the pressure on struggling households to meet mortgage payments – resulting in lower than expected forced sales.

This lack of stock is combined with a recent rise in interest from buyers, both first time buyers and investment buyers returning to the market to take advantage of lower mortgage rate deals (where available) and lower house prices.

All this means that the houses that are on the market are enjoying a slight premium – however the long term drivers of the market suggest that price increases may not continue and we may even see further price falls towards the end of the year. Ed Stansfield, Property expert at Capital Economics, was quoted in Ashley Seager’s Guardian article today as saying that the ‘weak economic outlook…hardly seems conducive to a housing market recovery, while all the evidence suggests that the market remains overvalued and that house prices have significantly further to fall’.

It seems then that many commentators believe the current house price rises to be a red herring.

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