Nationwide – 2010 The End of House Price Rises?

The Nationwide have released data indicating that house prices rose by 0.5% during November 2009. The data seemingly supports house price forecasters who expect that the rate of house price rises will diminish over coming months with possible retreat of prices during 2010.

The Nationwide’s figures show an increase in house price inflation year on year, from 2.0% to 2.7%; with the 3 month figures which many use to analyse short term trends, dropping to 2.8% from 3.5% in October and 3.8% in September.

Nationwide said that the average home is now worth £162,764. Property prices are still 12.5% lower than the peak we saw in October 2007 of £186,044. However, many consider the speed and level of recovery we have witnessed as ‘remarkable’. The Nationwide index details a recent low in February of £147,746 for the average house price.

Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said:

“The monthly rate of house price inflation was unchanged in November at a seasonally adjusted 0.5%, leaving the average price of a typical property 2.7% higher than a year earlier. At £162,764, the average house price is at a similar level to where it was in early 2006. The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – dropped to 2.8% from 3.5% in October and 3.8% in September. This suggests that house prices are now rising at a more moderate pace than in the spring and summer months, when they experienced a very strong bounce from the early 2009 lows.

Labour market has held up better than expected but uncertainties remain.

“The outlook for the housing market remains crucially dependent on labour market conditions, and here recent developments have been somewhat more encouraging than might have been expected. With the UK experiencing its longest and deepest recession since WWII, most economists expected unemployment to increase very sharply in 2009, perhaps breaching the psychologically important three million mark by the end of the year. While unemployment has indeed increased noticeably, the rise has not been as rapid and pronounced as previously feared. Based on the latest labour market figures from September, it now looks unlikely that the jobless total will reach three million before the year is up.

“Part of the explanation for why unemployment has not risen to the levels implied by the recession’s depth is that in many cases employers have opted to reduce working hours and pay rather than make employees redundant. This is reflected in rising part-time employment at the expense of full-time
employment and record low growth in average earnings. The strategy of cutting hours and pay rather than headcount probably reflects a fear among many employers that they could find themselves short of labour when the economy recovers, thus leaving them less competitive in the longer term. Whether this strategy is sustainable will depend on how quickly the economy recovers. If output is too slow to recover, then firms may find it necessary to reduce their payrolls further in order to improve productivity and profitability. Another reason to remain cautious about the future outlook for employment is that the public sector has not yet experienced any significant job losses, but presumably will begin to do so when fiscal policy is tightened from next year onwards.

“Despite continued uncertainties about the future, the better than expected performance of the labour market has probably contributed to the surprise rebound in house prices this year. Even though workers who have been forced from full-time employment into part-time work will have experienced a reduction in income, the impact has been less severe than it would have been if they had lost their jobs completely. Together with the fact that mortgage rates have fallen sharply as a result of base rate cuts, this has meant that far fewer borrowers have fallen into arrears than would normally be the case in such a deep recession. In fact, the percentage of borrowers in arrears across the mortgage industry has even edged down slightly in the most recent quarterly figures. As such, the downward pressure on house prices from distressed sales has so far been significantly lower than expected.”

However, many economists are predicting a return to price falls during 2010 as more homes are put up for sale. Many believe house prices have been supported by the lack of property on the UK market which have increased prices and given sellers an added edge in recent months. Many forecasters expect as more properties come to the market that this will have a negative impact on house prices.

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