Nationwide: British home prices now higher than a year ago
The Nationwide monthly index of house prices came in this morning showing a 0.4% bump in October from September. While this was less than last month’s 0.9% rise, it was the sixth consecutive month of price increases and it marked the first time in two years that house price in the U.K. were higher year-on-year. In fact, house prices are now a full 2.0% higher than in October 2008 according to the Nationwide figures.
Nevertheless, the Nationwide Chief Economist Martin Gehbauer is sticking to his more cautious view in contrast to his predecessor. He says:
House prices rose for a sixth consecutive month in October, but the strong upward momentum in property values seen over the summer is showing some signs of moderating as we head into the autumn months. The price of a typical property was 0.4% higher on the month in October, compared to an increase of 0.9% in September and 1.4% in both July and August. The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – dropped back slightly from 3.8% to 3.4%…
Preliminary GDP figures released by the Office of National Statistics showed that the UK remained in recession during the third quarter of 2009, defying widespread expectations that the economy had begun growing again over the period. The surprisingly poor figures have mixed implications for the housing market. On the one hand, a deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market’s recovery. Given the poor labour market situation implied by the economy’s ongoing weakness, it is difficult to imagine the housing market returning to the buoyant levels of activity and price inflation that prevailed earlier in the decade. On the other hand, the figures mean that interest rates are likely to remain at or near their current record lows for well into next year. As a result, mortgage affordability will remain relatively favourable for both new and existing borrowers. This should limit the number of distressed sales and cushion the negative impact of labour market weakness on housing demand.
The Nationwide numbers have generally been more bullish than the Halifax numbers and a gap has opened up between the two indices (see last month’s post). So, it will be necessary to see how the data are confirmed by the Halifax early next month. What should be clear is that low interest rates are a temporary salve. The recent increase in house prices is not sustainable unless we see an uptick in the British economy and a stabilization of the jobs market.
House Prices Rise At A Slower Rate In October – Nationwide press release