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House price recovery falters
By Rebecca Atkinson
The housing market recovery has faltered, with just a slight increase in property prices in October.Although house prices are now positive on an annual basis for the first time since March 2008, figures from Nationwide show the values rose by just 0.4% last month compared to a 0.9% rise the previous month. This leaves the average property worth £162,038 - 2% higher than a year earlier.The building society says the slowdown in house price inflation was to be expected, as the rising values seen over the summer were not sustainable in the current climate. In addition, Martin Gahbauer, chief economist at Nationwide, says the pick-up in mortgage approvals for house purchases - which has been helping to bolster property values - has lost some momentum in recent months.A low level of property up for sale combined with rising demand from buyers has also helped to support values. But as more homeowners look to sell and competition rises, house price increases cannot be sustained.Looking ahead, Gahbauer says the fact that the UK is technically still in a recession has mixed implications for the housing market. A longer recession, higher levels of unemployment and subdued wages, will act as constraints on the housing market's recovery, he explains."On the other hand, interest rates are likely to remain at or near their current record lows for well into next year," he adds. "As a result, mortgage affordability will remain relatively favourable for both new and existing borrowers."The rise in consumer confidence, however, could help drive house prices in the short-term. The latest consumer confidence index, produced by GfK NOP on behalf of the European Commission, shows confidence is now at its highest level since January 2008. Confidence about making a "major purchase" is at its highest since November 2007.However, Gahbauer urges caution: "It appears that actual house price inflation has moved somewhat ahead of what was indicated by consumer expectations."This could signal a period of moderation in house price inflation ahead, which is fully consistent with October's less pronounced increase in prices."Seema Shah, property economist at Capital Economics, says that, with property still overvalued, unemployment rising and historically low levels of mortgage lending, house prices fall are likely to resume in 2010."The recent upturn in house prices has been fuelled by a shortage of property for sale," she adds. "As this shortage eases, prices will fall back. In short, we believe that the recent revival is a false dawn. The house price correction has much further to run."
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