What makes house prices rise?

This is a huge question, so I can only note down a few pointers.

If asked, ''what is my house worth?" there is only one answer: "it is worth what someone is prepared to pay for it." In other words, like most investments, its worth depends upon sentiment seasoned with other influences.

If people are confident about the economy, house rises will rise (it is a feedback loop - conversely, if house prices rise, people become confident about the economy). With current economic insecurity, we have seen house prices fall, of course.

Affordability is another issue, with mortgages dependent upon income. The more money available to buy properties, and the lower the rates, the freer are people to obtain loans. A major effect of this is to increase the cost of the house they would have bought anyway, with a marginal possibility that they could buy a better (as opposed to more expensive) property.

An influence here is earnings. Earnings tend to rise a little faster than inflation, so progressively more money comes available to fund house purchases - hence house prices will also tend to rise.

Locally there will be other influences on house price movements, such as unemployment levels, the influx or otherwise of new industries, the catchment area of a school with a good reputation, regeneration plans or proposed new wind farms or recycling centres, for instance. The quality of the immediate neighbourhood is critically important.

Finally, consider that it is impossible, mathematically, for house prices to rise indefinitely, as it is also impossible for indefinite growth of any investment. If they could, then the value of those investments or house prices would tend towards infinity.

Quite simply, supply and demand. In 1991 I bought a house for £55k and sold it in 1998 for £55k - it was a buyers market and there was a lot of scepticism about the housing market during this period, so all this doom and gloom is nothing new.

In 2003, that same house rose to £135k. No alterations were made to the house, it was just that house inflation, which was effectively 0% between 1991 and 1998 caught up.

Basically, what I'm saying is be patient and house prices will increase again

There is also a lot to be said for the growing argument that the home you live in should not be considered an investment. it is simply a way of avoiding the potential loss of value compared to renting and would give certain habitation in retirement.

the problem is that over the last decade people saw property move generally in one direction and forgot that it could fall - even when they remembered previous market corrections.

its not quite the same analogy but you wouldnt expect to buy a car, use it for 3 years, get bored, buy another and then sell the original one for a profit!

clearly the above is not the same when you are looking to invest in property as an investment and not just as a place to live in for yourself. but then you should be applying strict investment rules to putting money in property just as you would any other asset such as cash, fixed interest or equities.

if the property doesnt stack up as an investment, dont buy it. But if it could make a comfortable home and you could live there a long time and it wouldnt hurt you to see the value remain static, then consider buying.