House price rise set to reach double digits

Published 29th Jan 2010

House prices rose by 8.6 per cent in January, compared with the same month last year, raising hopes that annual inflation will soon reach double digits for the first time in almost three years.

The last time the UK saw year-on-year house price rises of more than 10 per cent was in May 2007.

Month-on-month, average house prices increased by 1.2 per cent, according to the Nationwide, the UK’s largest building society, taking the average cost of a home in the UK to £163,481.

The three-month rate of change, usually a smoother indicator of the house price change than a single month's figures, dipped slightly from 2.3 per cent in December to 2.1 per cent in January, but the building society said this was mainly a result of small increases at the end of last year. There was a surge of purchases at the end of 2009, unusual for the winter period, as buyers tried to beat the change in the stamp duty threshold brought back on January 1.

Martin Gahbauer, chief economist at the Nationwide, said: "Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007."

He added that although it was encouraging that the UK was now out of recession, albeit by less than economists had hoped, it would not necessarily impact greatly on house prices.

“Although there may still be some upward revisions to the initial estimates of economic growth, this won’t change the fact that the rebound in the housing market – and particularly house prices – has gone some way beyond the recovery in the overall economy.

“This is a reversal of the picture in 2007-2008, when the housing market deteriorated much more quickly and at an earlier point in time than the wider economy.”

He added that, despite improvements in unemployment figures, pay freezes or reductions set to continue in coming months could have a dampening effect on big house prices rises.

Howard Archer, UK and European chief economist at IHS Global Insight, said: "The Nationwide data indicate that house prices started 2010 with some impetus and they look likely to rise further in the near term at least.

"Even so, the suspicion remains that the rises seen since early 2009 cannot be sustained given a still far from favourable economic environment and still relatively tight credit conditions. We believe that a modest relapse in house prices is likely at some point in 2010 and they may well be essentially flat over the year as a whole."

Source: ' Times '

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