After magnificently calling the housing crisis of 2008, by saying things like “strong economic fundamentals will continue to exert upward pressure on house prices,” the Halifax has gone all cautious.

The latest Halifax House Price Survey was out yesterday. It findings were a bulls’ dream, and yet it has gone all bearish.

For the first time since March 2008, the Halifax survey is showing an annual increase in property prices. In 2009, it had prices up 1.1 per cent.

Last week, the Nationwide recorded even more positive readings, with average prices up 5.9 per cent for the year.

Martin Gahbauer, Nationwide’s Chief Economist admitted “Few could have foreseen this development at the start of the year, when the near term price trend was still pointing to a repeat of the double digit annual decline experienced in 2008. Although house prices are still 12.2 per cent lower than their October 2007 cyclical peak, they have now rebounded by an impressive 8.9 per cent since their February 2009 trough.”

As for the prospects for this year, he added “Taking everything together, there is still a significant amount of fog clouding the outlook for house prices. This year’s recovery has to some extent been driven by transitory factors and there are reasons to believe that it will lose momentum over the coming year. At the same time, there is no obvious catalyst on the near-term horizon that would trigger significant renewed falls in prices, such as a sharp spike in interest rates or a further pronounced tightening of credit conditions from present levels. At this stage, therefore, it seems likely that 2010 will see no significant house price movements in either direction. However, the experience of 2009 demonstrates how unpredictable the market is at the current juncture and that one should always be prepared for the UK housing market to surprise.”

And returning to the Halifax, or to be more precise Lloyds Banking Group, for the Halifax is just a brand name these days, its housing economist Martin Ellis said “The prospects for the market this year will depend on how the UK economy evolves and whether there is a significant increase in the supply of properties for sale. Overall, our current view is that house prices will be flat during 2010.”

The Halifax made much of what it sees as improving affordability for first time Buyers, saying “research recently released by Halifax showed that the proportion of disposable earnings devoted to mortgage payments by a potential new first-time buyer on national average earnings has almost halved from a peak of 50% in June 2007 to 27% in November 2009. This improvement in affordability has been a result of the combination of lower house prices and interest rate reductions. Nearly a quarter of local authority areas became affordable for a potential first-time buyer between 2008 and 2009, increasing the proportion of affordable areas from 16 to 39 per cent.”

There are a few snags with the arguments being put forward. Both the Halifax and Nationwide agree low interest rates are the key to sustaining the housing market. And yet, we should all know by now that the current low interest rates are a symptom of weakness in the economy, not strength. So by arguing low interest rates will support house prices, they are effectively saying a weak economy will support the housing market.

Two factors lie behind the recent rises in house prices. First off, while both demand and supply are low, supply fell to even lower levels than demand. There is no reason to believe this will continue, after all, even at current prices, the cost of building a new property is lower than the value of that property once it is finished. The issue standing in the way of supply of new builds is the cost of land and reluctance from companies with large land banks to re-value their land holdings.

In short, we are suffering from a Japanese style reluctance to value assets correctly. This is delaying the necessary adjustments

The second factor relates to your average Brit’s love affair with housing. For more on this see, House prices set to rise in 2010, dollar set to recover, China set for meteoric growth and UK set for export led boom

For more on predictions for the housing market this year this year see:
House prices: the prediction for 2010