House price rises more than just “statistical noise”

The housing marketing has seen the rate of change turn positive for first time since December 2007, according to the latest house price index from Nationwide.

According to the report, the price of a ‘typical house’ increased by 0.9% in June, with the average house now worth £156,442. Despite a continued trend of house price rises, this latest figure is still 9.3% lower than a year ago. However, the report also shows that this is the first time since July 2008 that the year-on-year fall has been under 10%.

Martin Gahbauer, Nationwide’s Chief Economist, said:

“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.”

Despite very low house purchase activity, house prices have now risen in three of the last four months. Mr. Gahbauer argues that this trend is now more than just “statistical noise”:

“What is unusual about the recent trend reversal, however, is that it has taken place against a background of transactions activity that is still very low by historical standards. Although it has risen from the all-time record low reached in November 2008, the industry-wide number of mortgages approved for house purchases is still 55% below its long-run average and 33% below the trough reached in the 1990s downturn.”

“Normally, such a low level of house purchases would be associated with falling house prices. Alongside the low level of mortgage approvals, however, there continues to be a relentless drop in the stock of property available for sale, as potential sellers and builders have responded to depressed demand conditions by reducing the supply of property coming onto the market. As a result, prices have been able to stabilise even in the face of very low demand.”