House prices rise for fifth consecutive month
02 October 2009
House prices rose by 0.9% in September according to today's Nationwide House Price Index, the fifth consecutive monthly increase rising to the same levels as September 2008.
The annual house price change was 0%, up from -2.7% last month, whilst the 3 month on 3 month rate of change rose from 3.3% in August to 3.8% in September, the highest level since August 2004. However, the Nationwide state that the high supply of rental property raises questions about durability of prices.
Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said:
“The recent upward momentum in house prices has continued into September, with the price of a typical house increasing by 0.9% on a seasonally adjusted basis. The 3 month on 3 month rate of change, generally a smoother indicator of the near term trend, rose from 3.3% in August to 3.8% in September, the highest level since August 2004.
"At £161,816, the average price of a typical UK property was essentially unchanged from a year earlier, representing the first time since March 2008 that the year-onyear rate of change has not been negative. Over the first nine months of 2009, the seasonally adjusted index of house prices has risen by 4.1%, though relative to the October 2007 peak it is still down by 13.5%.
"The further increase in house prices is very much consistent with improvements in a broad range of economic and financial indicators over the last few months, all of which suggest that the most intense phase of the recession and financial crisis has probably passed. However, given that the housing market still faces considerable headwinds in the form of high unemployment, restrictive credit conditions and an impending withdrawal of the stamp duty holiday, it would be surprising to see house prices continuing to increase at the very strong rate seen in recent months.
“One reason to remain cautious about the outlook for house prices is that turnover in the market is still well below normal levels. The housing turnover rate, measuring the percentage of the private sector housing stock changing hands on an annualised basis , fell to only 3% at the end of 2008.
"Although it has since recovered to nearly 4%, there is still quite some way to go before turnover reaches the predownturn level of between 7% and 8%. Lead indicators such as mortgage approvals for house purchase suggest that turnover should continue edging higher over the next few months, but at the current rate of increase it would take another 18 months for it to reach pre-downturn levels.
“There is usually a fairly strong correlation between housing turnover and house price inflation. Under normal circumstances, the current turnover rate would probably still be too low to be consistent with positive house price inflation.
"However, during periods when only a small proportion of the housing stock is available for sale, even a relatively low turnover rate can be consistent with increasing house prices. There is widespread evidence that this has been the case so far this year, which explains much of the rebound in house prices since the February trough."
Paul Hunt, MD Phoebus Software, the mortgage-lender software supplier, said:
“The figures look very positive, but prices are only half the housing story. For instance, although the number of housing transactions has increased each month from a low of 27,200 in January 2009, to more than double that number over the summer, that's still a decline of almost 50% from the long run average of 105,270 property sales per month, over the seven years from 2001 to 2007.
"And there's still a huge disparity between the short supply of properties for sale and resurgent demand from buyers, which is pushing up prices artificially. In the short term, we can expect more homeowners to put their homes on the market. That will help redress the supply-demand imbalance and prices will begin to plateau. But in the long term we have yet to feel the effects of rising unemployment - lenders are right to be cautious about the future.”
David Whittaker, MD of Mortgages for Business said:
“The positivity of Nationwide's numbers contrasts with the falls we saw in the Land Registry index earlier this month. But at this point of the property cycle, there will always be conflicting data, month by month, and source by source. The market will continue to show what appear to be contradictory messages in any given quarter as different sampling measurements can produce different outcomes.
"Prices will continue to bump along in this fashion for a while yet. A recovery will have started when two out of these three sources report 3 months consecutive improvement in house prices. And I'll still only believe a sustained recovery is underway the papers start talking about the a lack of property for First Time Buyers!”
NAEA chief executive Peter Bolton King said:
“Further evidence that the housing market is recovering should be welcomed and these figures back up what NAEA members are telling us. However recovery is a fragile process and not guaranteed.
“Househunters need access to mortgages from the major lenders. The Government's flawed stamp duty policy also needs re-examining, otherwise these positive signs risk being short-lived.”
Brigid O'Leary, RICS senior economist says:
"Just as house prices fell very quickly at the start of the downturn, the recent turnaround has been surprisingly strong. The quarterly change (an indicator of the underlying recent trend) now stands at 3.8%, the highest since August 2004. Significantly, the regional breakdown shows that house prices actually rose in all regions, by an average of 3.7%, between Q2 and Q3 of this year.
"However, the recent trend in increasing house prices has been supported by very low levels of stock on the market. An increase in property for sale would improve transaction levels but could also put some renewed downward pressure on house prices. As restricted levels of activity won't ease entirely over the next couple of months some upward price pressure will remain.
"This means house prices are still expensive compared to average earnings, and with lower loan-to-value ratios now more the norm in mortgage lending, first time buyers may struggle to produce an adequate deposit.
"Looking ahead, high, and still rising, unemployment plus any future increases in mortgage interest rates will weigh on the outlook for house prices over the next 12 to 18 months."
David Brown, Commercial Director of LSL Property Services, comments:
“This is good news for the housing market, and good news for the wider economy. With borrowing rising and house prices on the up, there is a growing sense of optimism in the market. Homeowners and landlords alike have reason to celebrate. As prices rise, fears about negative equity can be laid to rest for the time being.
"Although confidence is returning to the housing market, turnover remains low. Mortgages are difficult to obtain for many first-time buyers, who are still having to depend on the private rental sector. Large scale landlords, with equity to invest, are in a fantastic position to broaden their portfolios and increase their profits.
"With strong tenant demand, rents and house prices on the up, returns for property investors look promising indeed.”
James Hyman, Partner for Residential Sales at property consultants Cluttons, comments:
"The supply crisis has driven property prices back to September 2008 levels, which is fantastic news for sellers. The busy autumn market is well underway and we have recently seen a sharp increase in sealed bids as buyers compete for the best properties.
"Sellers should make hay while the sun shines, as an increase in the supply of homes for sale easily could tip the market out of their favour."
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