House price bounce continues

The latest House Price Index from Nationwide has revealed that house prices rose by 1.6% in August.

This is the fourth consecutive month of growth and means the year-on-year decline has slowed from -6.2% to -2.7%.

The 3 month on 3 month rate of change, which is generally considered a better trend indicator, rose from 2.7% in July to 3.3% in August. This is the highest rate of quarterly growth since February 2007. However, the average price of a typical UK property is still slightly lower than 12 months ago, at £160,224.

The low Bank of England base rate, which has in turn led to low rates on mortgage deals has been credited as a factor in the rise.

Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said:

“There have been important developments in monetary policy this month, with possible implications for the housing market. Despite further signs of recovery in several key economic indicators, the Monetary Policy Committee (MPC) decided to leave interest rates unchanged at 0.5% and surprised financial markets by injecting a further £50bn of new money into the economy via its quantitative easing programme.”

“The exceptionally low level of interest rates offers some explanation for why house prices have not repeated the very sharp falls of 2008.”

“While low interest rates have clearly played a part in reversing the downward pressure on house prices, they are unlikely to stay at the current level forever. It is important to keep this in mind when interpreting recent price trends.”

“If the various monetary and fiscal stimulus measures that have been introduced over the last year are successful in reviving growth on a sustained basis, then inflationary pressures will eventually re-emerge and necessitate an increase in interest rates to more normal levels. When this happens, it will probably have the effect of releasing additional supply back onto the market and dampening the recent rise in buyer interest. Under such conditions, the strong price increases of recent months would become difficult to sustain. At the moment, a rise in interest rates is probably still some way off. However, the eventual exit from exceptionally loose monetary policy could make the recovery in the housing market bumpier than some might expect after the last few months of price increases.”

Meanwhile, the National Association of Estate Agents President Gary Smith commented:

“The latest statistics from Nationwide appear to confirm that the housing market has finally bottomed out and indications are that we are hopefully moving to a point where the gradual recovery in prices witnessed this year will be sustained.”

“Whilst it is true that conditions in many areas across the country remain tough, we must now concentrate on how the Government and major lenders can build on this evidence of new consumer confidence to further consolidate what will no doubt be the lynch-pin of general recovery in the UK economy.”

“As families now begin to perceive that with realistic prices, historically low interest rates together with the potential for capital growth, they will upgrade and move through the system bringing their own houses onto the market and boosting supply.”