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Short term figures show that house prices have risen in the past month. Does this mean that the fall in house prices is over?
House prices behave like any other asset class whose price depends on the supply and demand for credit. They have fallen because there has been little bank lending. Bank lending is still very low compared to the boom years.
Unemployment figures are rising and even if they stop rising now, arrears and repossessions will continue to rise for another two years. Repossessions are likely to exceed first time buyers this year. This means that there is extra future supply coming, yet to be absorbed into the market. Any rally in house prices must therefore be temporary, providing a selling opportunity for those who have waited to sell.
For a comprehensive discussion of bear markets, see Kauders Portfolio Management Newsletter 75.
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