Recent speculation about green shoots in the UK economy has been further fuelled over recent months because house prices have seen a small yet sudden revival after over eighteen months of falls.

Many industry officials, homeowners, and industry groups have been encouraged by the property price increases over the past few months, but there are also many industry experts that have said that this house price revival is only a temporary one that simply cannot be sustained.

According to the Nationwide measure property prices have increased by over 8 percent since February, but one property expert has described the price increase as ‘irrational’ and has stated that towards the end of the year property prices could start to fall again. James Thomas, head of the residential department at Jones Lang LaSalle is one of a number of industry experts who think that the current revival in property prices cannot be sustained.

He stated: ‘The unforeseen and seemingly irrational pick-up in prices has altered the outlook for UK house prices but it is likely that this recovery will prove temporary. The economic fundamentals that have supported the upturn, most notably the constrained supply of housing for sale, will be eroded as unemployment hits a peak and mortgage lending remains weak.’

He added: ‘While the recent improvement in the market is encouraging, it is impossible to ignore the short-term risks posed to the UK residential sector by rising unemployment and poor credit availability. We anticipate the current market revival to be unsustainable and predict a further contraction in prices during 2010 by -7%.’

It also seems that banks are treating the current revival with caution, as they are still being very careful with regards to mortgage lending. Despite the increases in property values over the past few months most lenders are still looking for high deposit levels from potential borrowers and are still charging high rates of interest despite the fact that the base rate is still at its all time low of just 0.5 percent. This has resulted in an under supply of mortgages, which could also put an end to the revival.

One industry expert said: ‘Whilst some commentators believe that prices have further to fall, the increase in prices over the last four months tentatively suggests that the market has bottomed out and that we are slowly climbing out of the trough. Whilst indications are that the market is ‘bottoming out’, the price gains achieved in completed transactions, as reflected in FTHPI, are very small and the potential for further reductions remains, not least because of the continuing under-supply of mortgages.’

He added: ‘Going forward, this could comprise a serious continuing downward pressure on the market. Given that interest rates will almost certainly rise in late 2010, it is clear that we are some distance from what might be seen as a stable and sustainable recovery. In that regard, the progress we report in the England and Wales housing markets has to be viewed with continuing caution.’

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