Training | 2010.01.29
House prices rose again in January
House price inflation looks set to reach double digits next month
House prices rose by 1.2% in January and the year-on-year rate of price inflation looks set to return to double figures next month, the UK\'s largest building society said today.
Despite the government\'s decision to move the stamp duty threshold back down to £125,000 at the end of 2009, the Nationwide\'s figures show the market started the year strongly, with the average cost of a home in the UK rising by more than £1,300 to £163,481.
Prices have now increased by 8.6%, or £13,000, since January 2009, when the housing market was in the doldrums, and the society said that unless they fall next month, the annual rate of house price inflation would return to double figures for the first time since May 2007.
The three-month rate of change, usually a smoother indicator of the near term trend than a single month\'s figures, dipped slightly from 2.3% in December to 2.1% in January, but Nationwide said this was mainly a result of small increases at the end of last year.
Last February now looks to be the month in which house prices reached their nadir on Nationwide\'s index, dropping to an average of £147,746, but even if they do turn out to have seen double-digit growth by next month, they will still be well below the peak of £186,044 reached in October 2007.
Nationwide\'s chief economist, Martin Gahbauer, said recent economic data, including this week\'s news that the UK had come out of recession , was a "mixed bag" for the housing market, which had already recovered at a faster pace than the rest of the economy.
Last year earnings growth fell to its lowest level on record as employers opted to reduce pay and cut hours as an alternative to making redundancies, and Gahbauer said this could have a knock-on effect on prices.
"The aggressive cuts in pay inflation have both upside and downside implications for house prices. With pay inflation near zero or even negative, every additional increase in house prices worsens housing affordability, particularly since interest rates are very unlikely to fall any further," he said.
"All else being equal, this limits the upside potential for the current recovery in house prices. On the other hand, pay restraint has allowed more people to stay in work and continue to service their mortgages at the current low rates of interest."
He added that the surprise leap in inflation in December meant higher interest rates "may be required sooner than is widely assumed".
A rise in rates could lead to problems for borrowers on variable rate mortgages who have been struggling to meet repayments which could result in more distressed purchase, and could also reduce the interest from new buyers entering the market, both of which would push prices down.
For more information, please visit
http://www.guardian.co.uk/money/2010/jan/29/house-prices-rise-january
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