This week has seen the release of data from CLG, covering the second quarter’s housing starts, and CML, providing the latest data on mortgage lending. Both have seen sharp increases. Housing starts in England during the second quarter of 2009 were 63% higher than in 2009 Q1 following the high rate of destocking occurring in the first quarter. Likewise, gross mortgage lending was an estimated £16 billion in July, a 26% increase from £12.7 billion in June.

This data follow on from positive house prices information recently. House prices have been quite erratic over the course of the year, due to the low number of transactions, but both Halifax and Nationwide reported that house prices increased in July, by 1.1% and 1.3% respectively.RICS revised their forecasts recently and they now anticipate that house prices will not fall by 10-15% in 2009 as they initially forecast but that the average house price at the end of this year will be slightly higher than at the end of 2008. These price rises suggest that even with a relatively low level of demand, there is still a lack of supply, as people are generally only selling if they need to due to low prices available.

However, I am still quite cautious with respect to the housing market. Housing starts still remain 44% lower than peak three years earlier and lending is still 36% lower than one year ago and it is still the lowest July lending figure since 2001. The positive news in the housing market is from an unprecedented low earlier this year. Furthermore, there are three key risks to recovery in housing.

Firstly, on the demand side, with unemployment continuing its rise towards three million in 2010, this could result in a fall in demand for house purchases and an increase in supply from those forced to sell, leading to further falls in house prices.

Secondly, also on the demand side, recovery in the housing market is heavily dependent upon credit availability rising further and while it has risen over the course of this year, this has been from unprecedented lows and it will need to continue rising at high rates to make the pent-up demand for housing in this country effective.

Finally, on the supply side, there are concerns that even if demand does pick up then will the industry have the capacity to deliver?

The news this week, and earlier in the month, points to positive news in the housing sector but there risks appear to be on the downside and, as a consequence, it is cautious optimism at this point.