Overall consumer expectations are consistent with house price inflation but poor GDP figures have mixed implications for the real estate market, the country’s largest mortgage lender says.
It was the sixth consecutive month in a row that property prices have increased but it is clear that the strong upward momentum in property values seen over the summer is showing some signs of moderating.
October saw an increase of 0.4% higher compared to an increase of 0.9% in September and 1.4% in both July and August.
The three month on three month rate of change, generally a smoother indicator of the near term trend, dropped back slightly from 3.8% to 3.4%.
The average price of a house is now £162,038, some 2.0% higher than a year earlier, representing the first time since March 2008 that the annual rate of change has been in positive territory.
Over the first ten months of 2009, the seasonally adjusted index of house prices has risen by 4.6%, though relative to the October 2007 peak it is still down by 13.1%.
‘A moderation in the rate of house price inflation was to be expected, as the very strong monthly increases seen over the summer months were unlikely to be sustainable over the long run.
Slower house price inflation is also consistent with developments in housing market activity, as industry figures have shown that the pick-up in mortgage approvals for house purchases has lost some momentum in recent months,’ said Martin Gahbauer, Nationwide's Chief Economist.
He added that it may also reflect a more natural level of stock available for sale coming to the market, alleviating some of the extreme shortages of property on the market seen during most of this year.
But the fact that the latest GDP figures show that the UK is still in recession will have an impact.
‘On the one hand, a deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market’s recovery,’ explained Gahbauer.
‘Given the poor labour market situation implied by the economy’s ongoing weakness, it is difficult to imagine the housing market returning to the buoyant levels of activity and price inflation that prevailed earlier in the decade,’ he said.
‘On the other hand, the figures mean that interest rates are likely to remain at or near their current record lows for well into next year.
As a result, mortgage affordability will remain relatively favourable for both new and existing borrowers.
This should limit the number of distressed sales and cushion the negative impact of labour market weakness on housing demand,’ he added.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors welcomed the figures.
‘The latest gain in house prices caps a generally good news week for the housing market with transaction levels continuing to recover according to the Land Registry and net mortgage lending rising a little further,’ he said.
