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There's been a lot of speculation recently about the possibility of a ‘double dip' in the property market, largely prompted by reports from  the Nationwide and then the Halifax that average prices fell in February by, respectively, 1.0 or 1.5 per cent.

Together with news from the CML that mortgage lending in January was exceptionally low and less than impressive GDP figures, this signalled a new opportunity for pessimists to predict a reversal in the fortunes of the property market.

To some extent this overstates the nature of the recovery and the significance of one months' data. 

As we mentioned in an earlier post, the tendency for several institutions and official bodies to report at different times on essentially the same data tends to amplify the message, whatever it is.  The sheer volume of reports about house price rises gave the impression that the recovery has been stronger than is actually the case and perhaps the same effect is being seen in reverse.

At least as far as the property market in the west of Scotland is concerned, results remain patchy.  In some areas, properties are selling at closing dates for well over their Home Report value.  In others, where demand is weaker, buyers are still hoping to negotiate downwards.  The truth is that for most buyers and sellers, prices are pretty stable right now.

This is partly why both properties coming on to the market and sales are rising.  Sellers now accept that they may get less for their home than they would have done in 2007, but think that's ok because they don't expect to pay quite as much for the home they want to buy.  Buyers recognise that they won't get a knockdown bargain, even though they are being cautious about how much they offer.

This is pretty much what you would expect to happen at the end of a market downturn.  Before the market recovers, there has to be some consensus that prices are not going to fall further and, judging by the behaviour of sellers and buyers today, that consensus has pretty much been reached. 

Of course, there are going to be fluctuations one way or another, but GSPC's best guess at the moment is that we have reached a broadly stable state in which prices will change little and transactions will remain subdued compared to the boom years.  Changes in price in one month or another, whether up or down, are unlikely to signal the start of a major change.  As Paul Samter at the CML points out:  "Given the short-term weakness and distortions in the housing market, as well as more properties coming onto the market, it was perhaps unsurprising to see falls in some of the monthly house price indices in February. With activity unlikely to pick up much in the short term, we would expect to see continuing price fluctuations in the coming months".

In short, don't be spooked one way of the other by one month's figures. 

But if there is to be a reversal in the property market, the pessimists need to point to the changes that will trigger it. 

Could it be mortgage lending?  Probably not.  Prices recovered last year despite a mortgage drought.  Lending may not be that much better this year, but it is very unlikely to be worse.  The driver of prices here was supply.  If sellers come to believe that their home won't sell for the price they want or need, they will simply withdraw it from the market or not put it on the market in the first place.  That's what happened last year.

Could a rise in interest force their hand?  It seems highly unlikely.  The Federal Reserve in the USA confirmed recently that it would keep interest rates at exceptionally low levels for some time to come and the chances are that the Bank of England will do the same.  We are all going to hear stories about rampant inflation driven by Quantitative Easing, but the Bank's latest inflation report shows that it thinks inflation will collapse in the second half of this year.  If the Bank is right, interest rates are set to stay very low for a long time.

Could a glut of properties push prices lower?  Again, probably not and for the same reason that weak mortgage lending won't push prices lower either.  People are more averse to losing money than they are keen to make it.  This is known as ‘loss aversion' and it is the principle motive why sellers withdrew their homes from the market last year.  If supply gets to the point at which it pushes prices lower, expect to see the number of homes on the market shrink rapidly.

Could unemployment do what a mortgage drought could not?  Possibly.  Unemployment has been much lower than forecast so far in this recession.  You may remember that at this time last year many economists were forecasting that unemployment would reach three or 3.5 million.  In fact, official figures put it at just below 2.5 million.  True, the figures are not all good news and there has been a sharp rise in the ‘economically inactive'.  Nevertheless, the surge in unemployment that was expected to push thousands of homes on to the market as homeowners without jobs were forced to sell up hasn't happened. 

Indeed, owners have proved remarkably resilient despite widespread reductions in household incomes.  According to the CML, repossessions were lower in the last quarter of 2009 than they were over the same period in 2008 and much lower than they were in the preceding three months.

But, if job losses through expected cuts in government expenditure are not matched by new recruitment in the private sector, and if that pushes unemployment substantially higher, then the potential is there for a reversal in prices.

In short, you can pretty much ignore the month to month reports of fluctuating prices or lending.  But keep a beady eye on the unemployment figures.