House prices resilient in face of economic pressure

British house prices rose by 0.4% in November, according to the latest data from Nationwide.

Nationwide Chief Economist Robert Gardner said: “UK house prices increased by 0.4% in November, taking the annual rate of growth to 1.6%, up from 0.8% the previous month. The price of a typical home is now £165,798.

“House prices have remained surprisingly resilient in recent months, despite the deterioration in the economic outlook.

“But, with the UK economic recovery expected to remain sluggish well into 2012, house price growth is likely to remain soft, with prices moving sideways or drifting modestly lower over the next 12 months.

“Demand conditions remain extremely subdued in the UK housing market, with the number of housing transactions and mortgage approvals still well below their pre-crisis levels and their long-term averages.

“Moreover, many of the factors that underpin the demand for homes have deteriorated further in recent months. For example, the UK economy lost almost 200,000 jobs in the three months to September – similar to the pace of job losses seen during the depths of the 2008 recession. At the same time, wage growth slowed to 1.7% – less than half the pace of inflation over the same period.

“Similarly, consumer confidence, which also influences the willingness to make a major purchase, remains extremely depressed. Nationwide’s index of consumer confidence fell to a new all-time low in October.

“Given the challenging economic backdrop, much of the current resilience in house prices reflects the lack of supply on the market at present. Indeed, the pace of building in recent years has fallen well below the pace of household formation – especially in England.

“The recently announced Mortgage Indemnity Scheme, which aims to boost first time buyer demand for new build properties by reducing the deposit requirement, offers the potential to boost housing demand from current subdued levels, especially if implemented against the backdrop of an improving economic environment.

“However, it is important that policy efforts are effective in boosting housing supply – especially given current population trends. For example, government projections point to an average annual increase in household formation in England rising to around 240,000 a year over the 2013 to 2023 period.

“Current rates of building activity are below what would be necessary to meet housing demand, if these population projections prove accurate. For example, in the four quarters to Q2 2011, 107,530 new dwellings were completed in England, less than half the volume required under this scenario.

“Similarly, even returning to the rates of building seen in the ten years before the financial crisis, around 150,000 units a year, would still be below the required rate of construction. However, it is reassuring that steps are being taken to try to address this issue.”

Richard Gordon of UKPI commenting on the report said: “This report shows the resilience of house prices despite the problems being experienced in the Eurozone. We have reported recently how people are turning to bricks and mortar as a safe haven for their savings and this will strengthen further as a lack of supply continues to keep the pressure on property values.”

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