UK house prices up for third time in fourth month
On the same day that the worst economic growth numbers in the U.K. in 51 years, we also get some news that the British economy may be stabilising. Well, at least house prices seem to be stabilising as Nationwide reported a 0.9% increase in house prices in UK June. That is the third rise in four months and takes the annual decline to only 9.3% over June of 2008.
Nationwide Chief Economist Martin Gahbauer notes that the 3-month average house price change is up for the first time in eighteen months.
The three month on three month rate of change – a smoother indicator of the short-term price trend – turned positive for the first time since December 2007 to stand at 0.9%, up from -0.4% in May. If the pattern of price movements seen in the first half of the year is repeated over the second half, then prices could show only a small single digit fall for 2009 as a whole. This would represent a stark shift from trends seen at the turn of the year, when most indicators were pointing to a repeat of the large declines seen in 2008.
Part of the reason prices have stabilised is the huge shadow inventory that has been taken off the market as prices declined, reducing residential property inventory. How long this lasts is anyone’s guess. But Gahbauer is cautious.
While it is encouraging to see that prices are no longer seeing steep falls, there are still many obstacles in the way of a genuine and sustainable price recovery. To begin with, abnormally low supply levels are unlikely to last forever, as the recent price increases should make previously hesitant sellers feel more confident about marketing their properties. Additional supply is also likely to come from homeowners who see their financial position impacted by higher unemployment and lower incomes. With the stock of property available for sale likely to eventually increase, house purchase demand will need to rise more convincingly from current levels to prevent a possible relapse in price levels.
Part of the reason that Gahbauer is awaiting further evidence has to do with the high cost of housing relative to income in the UK. We are still at levels unseen in the last 25 years, suggesting that house prices are still too high.
Nevertheless, three months in four is a good counter-trend to be taken seriously. To the degree this data is confirmed by the Halifax when it reports, we should start to consider that the U.K. is the first of the large housing bubble markets (Spain, the U.S., Ireland and the U.K.) to stabilise.
House Price Rise Continued in June – Nationwide