Recovery or retrenchment?

Much has been made in recent weeks of signs of stabilisation in the housing market, and even - whisper it! - a nascent recovery.

But a recent analysis of America's housing market in the Economist suggests that the current emergent upswing is a purely short-term feature, and further price falls of 5-10% are anticipated, bottoming out sometime next year.

Given the similarities between the markets in the USA and Britain, what conclusions can we draw about the prospects for our housing market?

Factors identified by the Economist as undermining the US upswing include rising joblessness, fragile consumer confidence, a shortage of mortgage finance and rising mortgage interest rates, the supply glut (which the Economist predicts will be fuelled by a continued high level of repossessions), and a shortage of buyers (worsened by negative equity). Any perceived improvement in house prices is likely to result in an influx of new sellers to the market - people who have been holding off until they scented a recovery. This 'shadow inventory', as the Economist calls it, could trigger a negative feedback loop in the property market.

Most of these factors are definitely also relevant to the UK housing market.

The Economist also warns that the end of the 'ever-increasing prices' myth will result in a much more cautious environment in the medium- to long-term, even after any recovery has properly kicked in.

It's pleasant for newspapers to be able to fill summer-season space with good-news stories of housing market recovery, but developing housing associations would do well to heed the Economist's warning and not get carried away just yet.