Halifax reports house prices rose in January shock!

The Halifax reported that house prices rose in January by 1.9%, the first rise since Feb 2008. We shouldn't get too excited, as the Nationwide reported a 1.3% fall. But still, it cheered me up no end.

The Halifax and Nationwide have different geographical strongholds as regards where they lend, so all we can glean from this is that the price falls are not uniform across the country. But, it might be a clue that housing may not quite go the way of the USA.

As mentioned in my previous post about American mortgages, the key advantage that the UK has over the USA is that in the UK there is incentive to resist defaulting and to repay debt come hell or high water.

This is crucial to house prices. Prices fall mainly if there is forced selling (supply overwhelms demand). But if people stay put, and try to repay debt instead, then you simply have a stalemate as sellers refuse to put houses on the market and buyers wait for further drops. What usually happens in times of recession is that the sellers blink first, due to unemployment.

However, since the October 2008 meltdown, people have been frantically paying down debt so that they may cope better should they be laid off - the British Bankers Association says that unusually, outstanding unsecured debt fell in December, though it is usually a month it rises. Anecdotally, people are taking advantage of the money freed up by interest rate cuts to overpay their mortgages. In addition, the 1.8 million or so who came off fixed rates at the end of the year also experienced a rate cut as they went on to the SVR (earlier in 2008 there were a lot of stories warning they would face payment rises). The government has also changed the rules so that from 5th Jan 2009, if you are unemployed, you qualify for help with the interest payments on the mortgage for the first £200,000 of debt after 13 weeks of unemployment (the old rules provided help with interest on the first £100,000 of mortgage after 39 weeks of unemployment).

All of the above should mean that forced selling is kept at a minimum, and thus property prices start to stabalise. Fixed rates on offer are also coming down and many would-be buyers are conscious that these are once-in-a-generation offers and are wondering whether to take the plunge.

The behaviour of the mortgagee (rapidly paying off debt), the government in supporting those unemployed and the Bank of England in cutting interest rates sharply, make this quite different from the early 1990's recession when there was also a house price crash. Then, interest rates in particular didn't fall till 1992 when we crashed out of the ERM, a good two years after the recession started, and mortgage holders were also not as savvy about things such as overpaying mortgages. We shall wait to see how this pans out.