Could we see a `double-dip` in house prices?

The latest housing market figures from Nationwide show that average house prices rose for the sixth consecutive month in October, while rising annually for the first time since March 2008.

By many economists` accounts, the future is looking positive for the housing market. But there is another theory: that house prices will only continue to rise for a short amount of time and may fall again. So what are the reasons behind this?

Why are house prices rising again?

To give this some context, we need to understand why house prices began falling in the first place. Basically, a shortage of funding for mortgage lending (part of the `credit crunch`), combined with worries about the economy and lower demand for houses amongst consumers, meant that people selling their homes were forced to lower their prices, or to sell at a lower price than advertised.

But in recent months, house prices have been climbing again. The global banking system seemed to be stabilising and the low base rate has meant that the cost of mortgages has dropped to some extent. Plus, the lack of supply has pushed prices upwards - many would-be sellers have been waiting for prices to go up again, so there has been more competition among buyers.

On the whole, this is positive news for the housing industry. But some economists believe there could be more falls in house prices soon to come - a `double-dip`, so-called because of its representation on a graph of house prices. But why is this?

Another fall in house prices?

There are a few reasons to believe we might see further house price falls.

Borrowers may struggle when the base rate increases

Reducing the base rate to 0.5% has had a positive impact on the housing market, but this won`t last forever.

The Bank of England is likely to raise its base rate again once it feels that the economy is strong enough, and this will clearly have an impact on mortgage rates. Some people on variable-rate or tracker mortgages may find the increased cost difficult (or even impossible) to cope with, while people on cheap fixed-rate mortgage deals may run into similar problems when their deal ends. This could lead to an increased number of `rushed` sales at cut-down prices.

End of quantitative easing could limit lenders

When the quantitative easing scheme ends, some lenders may find themselves short of funds for mortgages and other forms of credit. This could lead to another tightening of lending criteria, meaning fewer people will be able to get mortgages, and home sellers may be forced to cut their prices as a result.

Unemployment may increase

The country`s economic problems have an effect on individual businesses, but this isn`t always immediate, meaning that we could potentially see further increases in unemployment even after the recession has officially ended. That could lead to more rushed sales and decreased demand for mortgages, which could have an impact on house prices.

Tags: house, prices, house prices, mortgage, mortgage rates, fixed rate, base rate, Bank of England, base rate increases, quantitative easing, unemployment

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