House prices : Near term falls followed by a recovery

House prices are set to fall further in the next year but will start to recover in 2010 according to a new report.

It’s Monday morning, the weather is sunny and there is, at last, some good news about house prices. A report by some respected Oxford Economists has predicted that house prices will start to recover in 2010 and then rapidly increase by 25% in the next five years.

The report does show that house prices will continue to tumble throughout 2009 and show a 1.2% increase in 2010 as the economy starts to emerge from the recent slowdown.

It is the growing demand for housing coupled with a shortfall in the building of sufficient houses that is expected to fuel the recovery in the property market. For example, there is expected to be 223,000 new families forming every year, each requiring somewhere to live.

The demand for social housing is continuing to increase. This latest report states that 1.7 million households are currently on waiting lists for social housing.

It is the poor economic conditions caused by the high oil and commodity prices and the squeeze on mortgages caused by the credit crunch that is depressing the property market at the moment. As these problems ease, then house prices will start to recover.

Timing is everything

If this report proves to be accurate and we do see a gradual recovery of house prices over the next 18 months, then first time buyers and investors should take the opportunity to buy when house prices are at low levels.

As prices fall further, it will be the affordability of property that will convince people to enter the market. At that tipping point, demand will increase and prices will start to rise.

Timing will be everything to buy at the best value.

The impact on the rental market

The rental market is booming as falling house prices convinvce families to rent rather than buy their home. Rents are increasing and this sector of the market is enjoying substantial growth.

As house prices start to recover, however, those who are renting will start to find buying their home will offer better value than paying rent.

It is to be expected that a recovering housing market will result in a slowing rental market, so would be buy to let investors should exercise care in buying properties when their prices are at current lows.

Of course a recovery in house prices would not please everyone, however everyone benefits from a healthy economy. As house prices affect consumer confidfence and determine spending and investment patterns, this prediction that the housing market may recover soon is good news for most of us.