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. | 01.03.11 @ 19:46