Beware the spring property bounce

Experts are predicting a spring property bounce in 2010. But if you think this marks the start of a sustained house price recovery, you're a sucker.....

Estate agents are already limbering up for the great spring property bounce of 2010, but personally I wouldn't work up a sweat.

Not because I don't think there will be a spring bounce, because there probably will be. But anybody who is panicked into buying as a result could kick themselves later, because any bounce is unlikely to last.

The great cave price crash of 443BC

Property website Rightmove has just predicted a flurry of buyer activity and price rises in the early spring, but warns against reading too much into it.

It says it will be followed by a "more challenging period" after the general election, as the new government is forced to take all the tough decisions that Prime Minister Gordon Brown and Chancellor Alistair Darling are sneakily putting off.

It thinks that asking prices will remain flat in 2010, after rising by 1.7% in 2009, but others are more pessimistic. Capital Economics says house prices remain vulnerable to rising unemployment and future economic shocks, and will fall by 10% in 2010.

Mind you, Capital Economics has been predicting a house price collapse ever since stone age man bought his first cave, so don't start panicking yet.

Don't be a spring sucker

I've written before that I don't expect a house price collapse while interest rates remain at rock bottom levels, and I'm not going to change my tune now.

But nor do I think house prices are going to fly upwards, they are more likely to stumble sideways or even slightly down for the next two or three years.

I'm therefore worried that any spring bounce could sucker first-time buyers into the market, because they are desperate to buy before a resurgent housing market snatches the bottom rung of the property ladder out of their grasp for good. I think they've got nothing to worry about on this score.

Anybody who believes the spring bounce marks the start of a sustained house price recovery is likely to discover they have been suckered into a property market that isn't going anywhere fast.

Challenging times

I like that Rightmove phrase a "more challenging period". It's a nice piece of understatement.

Here are some of the "challenges" that the new government will have to face.

• Tackling a budget deficit of 13% - more than Greece! - and total debt worth nearly 69% of GDP (and rising fast).
• Slashing public spending, possibly by as much as 10%, without causing mass unemployment and social chaos.
• Increasing taxes without strangling the economic recovery at birth.
• Surviving the withdrawal of quantitative easing and other fiscal stimulus packages.
• Avoiding a currency downgrade that would send the UK into a debt spiral and possibly even a sovereign default.
• Keeping the economy afloat after inflation returns and interest rates start to rise.

The margin for error is tiny, but if the new administration fails on any of these counts, 2010 could be a bloodbath.

The show won't go on

If things are as bad as that, you might wonder why would anybody in their right mind would predict a spring bounce in 2010.

The first reason is that we are a nation in denial, a situation Gordon Brown desperately hopes will continue right up until polling day in March or May.

Alistair Darling's unscrupulous pre-Budget report demonstrated that Labour will do and say absolutely anything to trick us into thinking life is dandy, and the state can carry on pumping money into the economy. The illusion will be revealed directly after the election, regardless of who wins.

If the Tories win, the emergency budget they have promised right after the election will make it abundantly clear that the public spending show is over.

If Gordon Brown wins and continues spinning his financial trickery, the bond and currency markets will quickly boycott his performance.

You give me fever

I'm not saying don't buy a property now. This is always a highly personal decision. If you find the right place at the right price, your job is fairly secure, and you can afford the mortgage repayments, then go ahead.

Trying to time the market is futile, as anybody who sold in 2004 thinking the property bubble was about to burst, or delayed buying over the last 12 months on the assumption that prices would crash even further, will grudgingly admit.

Plus of course there will be regional differences, for example London property prices are likely to be much stronger than the rest of the country.

But don't let anybody use the prospect of a spring bounce to bully, hector or panic you into the property market, because there really is no rush.

Don't catch a cold

Time is on your side. You have months and quite possibly years to save a bigger deposit, hunt around for a better property, strike a good bargain on the price, and buy a place you really can afford over the longer run.

Anybody who does fall victim to spring fever risks catching a cold in the summer and beyond.

What's your prediction?

What do you think will happen to house prices next year? Tell us your predictions using the comments box below!

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