House prices rise 0.4% to end year where they began

Published 03rd Jan 2011

Nationwide reports surprise rise in December after two months of falling prices


The UK housing market has ended a volatile 2010 roughly where it began, after Nationwide reported a surprise 0.4% rise in house prices in December. But prices are expected to fall in the early part of the new year.

The seasonally adjusted increase in the average UK house price reversed the declines seen in October and November, meaning the average house now costs £162,763, compared with £162,103 at the end of 2009.

Economists had expected Nationwide to report another monthly decline. However, its chief economist, Martin Gahbauer, warned that the market is fragile.

Housing minister Grant Shapps is preparing to meet Hector Sants, chief executive of the Financial Services Authority, next week to discuss the regulator's plans to toughen up the mortgage market. a government spokesman told Reuters: "[They] will discuss a variety of topics relating to housing and the housing market and one of those will be the regulation of mortgages and how that can be applied more liberally to enable more people to access financing for housing."

Gahbauer added: "Despite December's increase, house prices have fallen in four of the past six months and it would be premature to suggest that the recent downward trend has been broken." "However, the December figures do underscore the fact the current downtrend is very modest, particularly in comparison with the second half of 2008."

He predicted that house prices will probably be stable through 2011, with the possibility of a "slow drift down" in the first half of the year.

"At the moment, there are probably still too few buyers chasing too many properties," Gahbauer said.

Howard Archer, chief UK and European economist at IHS Global Insight, believes prices will decline in 2011. "Housing market activity is still very low compared with long-term norms, and the economic fundamentals for house prices are largely unfavourable," he said. "We continue to believe that house prices are likely to fall by around 6% in 2011, which would take them 10% below their 2010 peak levels."

Archer also warned that the Bank of England could surprise the markets by raising interest rates early in 2011, should inflation remain above its 2% target.

Stripping out seasonal adjustments, Nationwide's data showed house prices actually falling by 0.4% in December. Nationwide adjusts all its monthly data to account for typical changes in the market through the year.


East Anglia leads the gainers

Gahbauer described 2010 as "a tale of two halves". Prices rose strongly through the first few months of the year, continuing 2009's gains. But after peaking at £170,111 for an average house, prices fell back through most of the second half. August saw the largest monthly fall, with prices dropping by 0.9%.

Nationwide's regional breakdowns showed the biggest house prices rises in East Anglia, with a 3.8% gain. Northern Ireland was the worst-performing area: the average price here fell by 8.9%.

Other housing data released this week paints a different picture. Yesterday the Land Registry reported the average price of a house in England and Wales falling by 0.6% in November, leaving prices 2.2% higher than a year ago. Its data, although less timely, is seen as more accurate as it is based on sale prices rather than the mortgage approvals data used by Nationwide. A survey released on Monday from Hometrack reported a 1.6% fall in prices during 2010.

The Office for National Statistics has called for a single official house price measure. National Statistician Jil Matheson said she feared the lack of a "definitive set of official house price statistics" means buyers and sellers do not have enough clarity about the state of the market.

Source: ' Guardian '

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