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Estate agents are once again tossing around words like “stabilisation”, “bargain” and “bottom of the market”. UK house prices have now risen three months in a row, according to Nationwide. US prices have risen marginally too. New buyer inquiries are up. Furthermore, the amount of sales relative to the number of houses available for purchase appears to have turned. In the early 1990s, a similar improvement in the UK’s sales-to-stocks ratio eventually heralded a market recovery – although it was three years before real house prices rose.

It would be remarkable if the British housing market really has stabilised, given the economy is only six months into its steepest recession since the second world war. Another possibility is that house prices have only found a resting ledge on the way down. Affordability is still a stretch for most first-time buyers. It is true that at around 30 per cent of disposable income, mortgage repayments are near 40-year averages. But that is thanks to low mortgage rates. Assume average long-run mortgage rates, and payments would chew up some 40 per cent of incomes.

Derivatives markets, however imperfect, suggest further falls. The future house price index from Tradition, an interdealer broker, forecasts a 6 per cent drop by 2010, and another 4.5 per cent drop two years after that. Other metrics suggest steeper falls. House prices have dropped to around 5 times earnings. But the average since the 1970s is 3.7.

For the moment, a lack of supply is squeezing prices higher. That is especially so for buyers who view houses as places to live, rather than investments, and may be willing to ride out losses. But history would only repeat itself if the current recovery stalled. The same happened 18 months into the crash after the 1989 price peak.

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