December 28, 2006

House prices score double-digit gains

Times Online and Agencies

   House prices scored their first double-digit gains for almost two years this month, according to the latest survey from the Nationwide building society.
Prices rose 1.2 per cent this month compared with November, taking annual house price inflation to 10.5 per cent, the fastest pace since February 2005.
The rise brings the average price of a UK home to £173,746, up from November's £172,185.
Fionnuala Earley, Nationwide’s group economist said: "The price of a typical house increased by the equivalent of £45 per day in 2006 - three-and-a-half times faster than the £12.50 per day in 2005".

   Next year, the building society still expects the rate of house price growth to remain robust but the pace of growth will slow to between 5 per cent and 8 per cent.
Ms Earley added: "There are still few signs that the rate of house price growth will moderate in the very short term. Evidence from estate agents continues to show that supply conditions are tight with fewer sellers coming to market."
The society expects "worsening affordability and recent interest rate hikes to affect the levels of activity in the market in the coming months" and said "this will feed into a slower rate of house price growth in the second half of next year."
Nationwide still believes that interest rates have peaked at the current rate of 5 per cent, but cautioned that the strengthening housing market was identified as an upside risk in the last set of minutes from the Monetary Policy Committee.

   The society said that the labour market remains the biggest risk to interest rates, but the evidence of some slack in the labour market and increasing use of migrant labour along with relatively weak consumer confidence should keep a lid on wage inflation.
Howard Archer, chief UK and European economist at Global Insight said the December jump is the sixth successive month that house prices had risen in a 0.8-1.4% range.
Mr Archer said: "Given current ongoing high mortgage activity and a shortage of supply in many areas, house prices are likely to remain buoyant in the near term at least as pricing power is tilted towards the vendor. This is particularly true in London and the South East, where prices are being fuelled by elevated City bonuses as well as a shortage of supply.
"However, we suspect that growing affordability pressures resulting from higher interest rates, muted real earnings growth and elevated house prices will increasingly feed through over the coming months to squeeze buyers out of the market and curb house price rises," he said.

   First time buyers are finding it ever more difficult and costly to break into the housing market. The Council of Mortgage Lenders reported that loans-to-income multiples for first-time buyers averaged a record 3.27 in October compared with 2.4 a decade earlier.
Mr Archer said: "It is highly possible that with so many people stretched to the limit in buying a house, even a modestly small cumulative rise in interest rates will ultimately have a substantial dampening impact on housing market."

http://business.timesonline.co.uk/article/0,,9063-2521366,00.html