Mystery of House Prices | 16.11.2009

What on earth is happening in the housing market? Of the many economic puzzles thrown up by the recession, this is the most mind-boggling – for homeowners, first-time buyers and the wider economy. The conundrum is this. Unemployment is close to 2.5 million and will go higher. Pay rises are rare. People fear debt. The credit crunch has hardly gone away, meaning that mortgage finance, especially for first-time buyers with slim deposits, and movers with little equity, is expensive, if available at all. Mortgage approvals may be up on last year, but the new money going into the market isn’t sufficient to secure rising prices. Values are steep by long-term historical standards in relation to earnings, especially in London.

So prices ought to be tanking. And yet … the Royal Institution of Chartered Surveyors sees a gathering wave of optimism among surveyors watching their local property scenes, and the Nationwide has just reported rising prices for the sixth month in a row. Prices are stabilising, even rising – 0.4 per cent during October, up 2 per cent on last year (though prices are still about a fifth off their peaks).

Why? And can it last?