2. general congreve said...

If there are early signs of green shoots as claimed it is only down to the following reasons:

1. There are many people who have been struggling to get on the ladder for years. The 20% price drops we have seen have so far are encouraging some of these people into purchasing, as the prices are now within their range for the first time ever. They have been priced out for so long they don't want to miss their opportunity to buy. Said people will probably have been saving for a house for years, will have a healthy deposit and are therefore able to meet the 25% deposit requirements on mortgages at the current time.

2. Interest rates are artificially low.

3. The full impact of recession has yet to be felt. The sun in shining again and things don't seem to be half as bad as the pundits have been saying. In other words, reality hasn't caught up with us yet.

IMO prices will continue to slide because the economic fundamentals cannot support a rising housing market, mainly because:

1. Unemployment is rising, this reduces the pool of people in the market and drives down prices.

2. Interest rates will have to go back up at some point, putting further pressure on marginal homeowners who have so far been saved by interest rate cuts, but will struggle to make repayments when rates rise. This will push up repossessions and undermine house prices.

3. Most of us are so heavily indebted we cannot afford to take on more debt, whether it's for a tv or a house, so where will the money come from to push prices back up? Unless the banks decide to lend ever more ludicrous amounts to increasingly risky customers to get the market moving. Admittedly is happening in part thanks to govt. involvement in banks, but not to the levels needed to increase house prices and ultimately it can't perpetuate anyway, as there are limits on peoples ability to repay, which have been pretty much reached now.

4. Those people mentioned in my earlier point 1 constitute a limited number of buyers who actually have money for a deposit and are impatient/silly enough to buy back in at this point in the market. They cannot permanently change the direction of the market.

Therefore prices will have to drop to affordable levels for most people, it's called market equiblirium. My personal opinion is we're looking at 35% on average by the time this is over.