House price growth hits three-year high

Published 29th Apr 2010

House price growth hits three-year high
Property values grew by 1 per cent in April to an average of £167,802


House price growth has broken the double-digit barrier for the first time in almost three years, suggesting that confidence in the market has returned.

Nationwide said that the 10.5 per cent growth in average annual prices was the highest since June 2007.

Property values grew by 1 per cent in April to an average of £167,802, bringing them to within 10 per cent of their peak in October 2007.

Prices have risen by 6.7 per cent during the life of the last Parliament — half the rate of inflation over the period, which reached 13.5 per cent on the consumer price index.

Nationwide attributed the strong rebound in the past year to low levels of stock on the market and relatively high demand, rather than to high levels of sales.

It warned, though, that the upward trend was likely to stabilise over the coming months as more sellers put their homes on the market.

Martin Gahbauer, chief economist at Nationwide, said: “Given the very strong performance of house prices from May 2009 onwards it will take monthly increases in excess of 1 per cent for the annual rate of inflation to be maintained in double digits going forward.”

The level of the monthly rise, based on seasonally adjusted figures, was partly due to April 2009 being one of the weakest months of last year, Nationwide said.

The quarterly rate of growth, regarded as a smoother indicator of house price trends, fell further from 1.5 per cent in March to 1.1 per cent last month as a result of the 1 per cent decline in prices in February.

David Smith, senior partner at Carter Jonas, the property consultancy, said: “The property market may have edged into double-digit territory but it’s important to put this symbolic price point into context. The price rises of the past year have been driven primarily by a shortage of stock rather than strong demand.

“They are also being supported by low interest rates, which will only remain at the current level for so long, and possibly not as long as some think given rising inflation.

“Once interest rates rise the pace of price growth will become more subdued and there may be an adjustment in the second half of the year.

“Many buyers are currently sitting on their hands, waiting to see how the general election and a second potential Budget pan out before they commit to transact.”

Nationwide said that the main source of demand since the middle of last year were homebuyers taking out mortgages, rather than cash buyers, despite the ongoing constraints to mortgage availability for those with small deposits.

The proportion of cash transactions averaged 43 per cent in 2008, when mortgages were most scarce, against 37 per cent in 2007. “This suggests that cash buyers did make some contribution to clearing the excess stock of housing on the market during the period in which mortgage finance was least available,” Mr Gahbauer said.

“The importance of cash buyers in the market started to decline at exactly the same time as house prices began the strong rebound that has lasted up until the present day.”

Source: ' Times '

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