House prices on the rise but are they a false sign of recovery?

According to the House Price Index from Rightmove.co.uk, asking house prices rose again in May, making it the 4th consecutive month of house price rises. But are they a false sign of recovery?

Sellers pushed up their house asking prices by 2.4%, up from a rise of 1.8% in April.

There is concern though that sellers are being forced to set the high prices to ensure they have enough equity to enable them to get an affordable mortgage deal for their new property.

Mortgage lenders have far tighter mortgage lending criteria and lower loan to value (LTV) ratios than previously, meaning sellers are seeking to create as much equity as they can by raising the asking price.

The question is how realistic then are these house prices?Are they a false sign of recovery?

It is difficult to say but what is clear is that there are thousands who are simply not willing or able to put their house up for sale as they know they cannot get a price that gives them enough equity to fund their move and buy a new property.

There were only 61,000 new sellers this month compared to 135,000 last May.

People stuck in this lack of house equity trap include:

• Equity releasers – those who kept withdrawing any equity they could during the house price boom years and therefore now do not have much equity in their property
• Recent buyers – potentially now in negative equity or at best have very little equity
• Equity losers – those who are losing out on their equity due to the continuing fall in house prices

Supporting the issue with house prices, it is worth noting that Rightmove has published nearly 60,000 price reductions of more than 2% in the last 4 editions of their weekly online magazine.

The average price reduction for these in a sizeable 6.8%, equating to an average of nearly £19,000.

Mile Shipside, commercial director at Rightmove, commented ‘Pricing below your local competition, if you can, is vital in order to achieve a sale. With deals being done at prices 25% below the peak of the 2007 boom, it’s not surprising it’s taking some sellers a long time and some hefty price slashes to adjust to the new 2009 price floor.’

He added ‘At present it looks like the market is bumping along the bottom in terms of transactions, with limited supply preventing further price falls. This is a welcome element of stability though being on one’s knees, whilst stable, is not a desirable position for any length of time.’

It seems we’re not out of the housing market woes just yet.

Clealry more support from the mortgage lenders is desperately required to help get it moving again.