U.K. house prices rose 2.9% last year

Somehow, you just know this is going to end badly someday...

The BBC reports that the government's survey of U.K. property prices showed a 2.9 percent gain for 2009, paced by an increase of almost five percent in London.

Prices rose 3% in England, 3.8% in Scotland and 1% in Wales, but fell 6% in Northern Ireland, the Department for Communities and Local Government said.

The figures suggest that the recovery in house prices last year was not as strong as suggested by lenders.

Both the Nationwide and the Halifax have said that UK house prices rose by nearly 6% last year.
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Howard Archer, chief UK economist at Global Insight, said: "Virtually all house prices measures, including the DCLG, indicate that house prices troughed in the early months of 2009 and have been firming ever since.

"The revival in house prices since the early months of 2009 is a consequence of buyer affordability and interest being lifted by sharply reduced mortgage interest rates."

Policymakers in the U.S. must be scratching their heads, wondering how the Brits could not only have succeeded in stopping house prices from falling, but made them rise smartly again after their housing bubble had grown even bigger than ours just a few years ago.

Of course, despite the conventional wisdom of 2005 (and, apparently, again in the U.K. last year) nothing in life is free and some now wonder how long-lasting the recent upward trajectory in U.K. home prices might be.

Over at the Telegraph, Banking Editor Philip Aldrick notes that a second credit crunch may now be on the way, one that is sure to have an impact on property values as the Bank of England's massive money printing campaign of 2009 fades and credit markets return to 'normal', whatever that might be in our post-crash world.

A second mortgage credit crunch that will send UK house prices into a new tailspin is looming, economists and credit experts have warned.

The squeeze on debt will begin to be felt in January next year, when lenders are due to start repaying £319bn borrowed from the Government during the original crisis in 2007 and 2008 – a quarter of the UK's entire £1.3 trillion stock of mortgages.

To pay the money back, credit-rating agency Moody's said, banks and building societies may "limit their lending through tighter credit criteria" – in other words reducing availability and making mortgages more expensive.

Capital Economics added: "The prospect of a fresh mortgage credit squeeze later this year or during 2011 hardly inspires confidence in the durability of the housing market recovery."
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Moody's added that the benign environment of low interest rates and "other Government stimulus [which] have helped borrowers" may just have been "transitory".

My guess is that, as the year 2009 begins to fade further into the rear view mirror, a surprising amount of the improvement we saw in the global economy - aided by the largest burst of money printing in the history of the world - will also prove to be 'transitory'.