Derivatives point to housing slowdown

LONDON (Reuters) - Housebuyers may still have a chance to secure a bargain home between 2010 and 2011, with annual house price growth seen at about half the 5.5 percent expected by end-2009, indicative derivatives data shows.

Participants in Britain's junior property derivatives sector said the recovery of the supply starved residential market remained on solid footing, but price rises were set to slow as housebuilders upped construction in an effort to meet demand.

"Physical house prices in the UK have continued to increase despite worries that unemployment, restrictive lending and an increase in taxation would prevent recovery," Peter Sceats, a broker at Tradition Property told Reuters.

"Some traders are focusing heavily on the core fundamental of supply and demand and believe the rate at which new homes are being (and have been) built is severely insufficient for the UK's future housing needs," he said.

Average UK house prices are seen rising by nearly 12 percent over the next five years, the data shows, against September projections of an 8.5 percent rise for the same period.

On November 3, Halifax Building Society, one of the UK's largest mortgage providers, said house prices had risen 1.2 percent in October, squeezing the annual decline to its smallest in one-and-a-half years as higher demand and a lack of homes for sale buoyed prices.

Last week, housebuilders Redrow and Taylor Wimpey added to the rising tide of optimism in the UK housing market, after reporting stabilising sales and shrinking inventories.

"Despite Taylor Wimpey reporting strong results in a market they described as significantly better than last year, the property derivative market is still slightly cautious about 2010 and 2011," said Michel Heller, a trader at CB Richard Ellis/GFI.

Notwithstanding this caution, Heller said derivative prices are pointing to a brighter longer-term, with an average expected house price rise of around 25 percent over the next 10 years.

Average UK house prices, as measured by the non-seasonally adjusted Halifax House price index, stood at 165,430 pounds in October, from a peak of 201,081 pounds in August 2007.

Below are expected annualised percentage changes in UK house prices based on non-seasonally adjusted Halifax House Price Index derivatives.

The young market provides investors with an opportunity to adjust or hedge exposure to the UK housing market synthetically -- in a cheaper and more efficient way than buying or selling bricks and mortar.

(Reporting by Sinead Cruise; Editing by Andrew Macdonald)