House prices up again – but it won't last, warn experts

Published on Tuesday 1 December 2009 21:59

HOUSE prices have risen for the seventh consecutive month, figures from Nationwide showed yesterday – but economists warned that the pace of growth is slowing.

The average cost of a home increased by 0.5 per cent in November to 162,764, the mortgage lender said in its monthly house price report.

But although prices have risen 2.7 per cent from a year earlier, home values remain 13 per cent lower than at their peak in October 2007.

And experts have warned that the housing market remains "crucially dependent" on the number of unemployed.

Martin Gahbauer, Nationwide's chief economist, said that despite continued economic uncertainty, better-than-expected unemployment figures had contributed to the surprise rebound in house prices this year.

He said: "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. As such, the downward pressure on house prices from distressed sales has so far been significantly lower than expected."

But expected cuts in public- sector jobs during 2010, as well as the spectre of three million unemployed, may work to destabilise the recovery.

The figures come after the Bank of England announced on Monday that mortgage approvals had risen for the 11th consecutive month to 57,324.

And in November, the Office for National Statistics said that unemployment in October rose at its slowest pace for 18 months, while the number of people in work increased for the first time in 14 months between July and September.

The housing market has recovered more quickly than expected during 2009, driven to a large extent by a shortage of properties for sale, driving up prices.

However, by 2010, many economists are predicting a return to price falls as more homes are put up for sale.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "While the Nationwide data indicates house prices are still on an upward track from their February low, the reduced month-on-month increases in both November and October suggests the rally is beginning to get heavy-legged.

"This fuels our suspicion house prices are likely to suffer a modest relapse in 2010."

David Marshall, business analyst with the Edinburgh Solicitors Property Centre (ESPC), said that yesterday's figures were a continuation of recent trends.

He said: "House prices have been inching up over the last few months and are slightly ahead of where they were at this point last year. The rate of increase has cooled somewhat, which should be beneficial as the rate of growth witnessed over the summer would not be sustainable over the longer term."