After months of falls in the value of property nobody knows how much further that might continue and if most people think that it will, they might be unwilling to commit to buy right now. There is the additional problem that with the economy balanced so precariously people are concerned about their prospects for the future and the possibility of suddenly finding themselves unemployed and their income reduced.

The Northern Rock mortgages will help improve availability of mortgages and it may signal a start to turning things around. There are many people who do feel secure in their jobs and will be ready to buy houses and it may be that we are nearing the bottom of the slump and it could be a good time to be buying but there are many questions and few answers right now.

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About eight years ago a friend who was saving very hard to buy a property found property prices were rising faster than she could save her deposit. She was a typical first time buyer and those first time buyers are at the heart of the property market. If the first time buyer could not buy then house prices should have stopped rising. The rapidly increasing house prices were leaving more and more first time buyers behind and there was no way an average person could get on the housing ladder.
We then had the era of easy credit with 100% mortgages and self certified mortgages and a surge in buy to let which opened the floodgates and new buyers poured into the house buying, and investing, market.

As I write this I hear the housing minister on the radio talking about helping first time buyers raise their deposits to help them buy a house and a year or two ago we heard the prime minister talking about helping first time buyers but all these plans do not solve the problem. A house price should reflect the market and if nobody can afford a house then that value is overpriced. The government can try to support an unrealistic price but ultimately that is doomed to fail unless they plan to support buyers forever.

The problem with the housing market is that hopes, expectations and easy credit raised prices far beyond the true market value of property. The sudden disappearance of no deposit and low deposit mortgages took a huge chunk of potential buyers out of the market which imediately reduced the numbers of first time buyers who could afford to buy with the obvious result that prices started to slide.
The housing market has to find it’s own level. Until buyers have the required deposits, which is no small matter at current house prices, and they can get mortgages for the property they want to buy, prices will stagnate or fall further. When buyers exceed sellers house prices will begin to rise again but everything suggests that prices will fall further before we get to that more stable position again and perhaps we would all be happier if house prices did remain stagnant for a few years so we could treat houses as homes rather than investments.

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The change has been blamed on the tighter restrictions placed by the mortgage providers on potential borrowers but it surely had to happen sometime, credit crunch or no credit crunch. The growth in house prices was encouraged by easier lending practices and a greater flow of available money but the borrowing had to stop sometime. You just cannot go on increasing your debt forever. Everybody knows this but somehow all those involved in the housing industry convinced themselves that prices could just keep climbing forever.

The National Housing Federation have also released some figures and they seem to think that house prices will rise 25% by the year 2013. Maybe they are right but if so that only equates to 5% per year which is not so far above inflation at the moment. They base their figures on the fact that there will be a shortage of housing and that will push prices up. Supply and demand is the most important factor but it still needs buyers who can afford to buy a house. Current prices of around £175,000 for a house mean that a buyer needs a deposit of about £20,000 and that takes some saving these days. Most people would have to save for years to get anywhere near that figure and the way house prices have been for the last few years anybody saving towards buying a house has seen the prices rising faster than they could save towards a deposit.

The best thing for most people would be a stable period for house prices and for those trying to get on the ladder the best thing would be a housing crash. Of course neither of these are events that those employed in the housing and finance industries want to see and they will continue to attempt to talk up the price of houses.

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Many people did decide that property was the way to go and they bought houses as investments and were doing very well out of it, on paper. What seemed to be an unstopable rise in the value of property appears now to have been a bubble. Just how big that bubble was will only be understood over time but there is little doubt it was a temporary bubble.

The value of property does of course rise over time and no doubt will do again but it is usually in proportion to wages and a other factors. The bottom line is that houses rise because people want to buy them and have the money available to buy. If the money is in short supply or the prices are unaffordable then there can be no real growth in the value of houses because nobody can afford to buy them.

The financial industry have done their best to keep property values rising by making more money available in greater amounts and with less restrictions on who was able to borrow. The government have tried to find ways to help the  market by giving support to people who want to buy. All these measures merely supported an unrealistic market and as the availabilty of loans began to dry up following the credit crunch the whole property market had to face reality.

We are now experiencing a period where the housing market is adjusting to the new situation. There is less demand, less availability of money and house prices have fallen below their peak levels. Prices are likely to continue to ease for some time until the market finds it’s balance point between supply and demand. Where that level ends up nobody knows but it is a lesson for us all.

Property may be seen as an investment but when you are talking about your home it is not one you can deal as easily as stocks and shares. It’s value may increase but it can also fall. The demand will remain high but not everybody can afford to buy and values will remain tied to earnings and availability. You may invest in your home and it may be a good investment over a period of years but ultimately, it is your home and it is somewhere to live, nothing more.

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The credit crunch has demonstrated that you cannot go on borrowing more and more, forever. It seemed obvious but somehow those in charge of these things didn’t notice that basic fact. For most of us who have no plans to sell up it makes little real difference whether our houses are worth a million or tenpence but it will be a worry for those who bought at the peak of the market. No doubt prices will rise again in a year or two when we have all got our finances back into better shape but it could be that this year will actually be a good year to invest in housing, if you get your timing right.

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