Thursday, March 31, 2011

Unexpected bounce in house prices

Unexpected bounce in house prices : UK house prices bounced unexpectedly in March, according to an index, marking the third rise in the past four months and the first time since last May that prices have shown a rise in consecutive months.

The Nationwide House Price Index rose 0.5 per cent in March and now stands marginally above last year’s levels. On a three-month on three-month basis – considered a smoother measure of prices – prices are up 0.6 per cent.

However, Robert Gardner, chief economist at Nationwide, said that the latest move is far short of a signal that prices are set for a rebound. “The outlook remains uncertain, but all things considered, this is unlikely to mark the beginning of a strong upturn in prices,” Mr Gardner said.

Nationwide is also the producer of a consumer confidence index that dates back to 2004 and recently hit an all-time low, he noted.

Moreover, the UK economy hit what he described as “a soft patch” at the end of 2010 and there have been few signs of a strong recovery. Moreover, swingeing public sector job cuts are about to take hold, creating uncertainty for consumers.

Howard Archer, economist at IHS Global Insight, said house prices could be very volatile on a month-to-month basis and that volumes of transactions were at a low level that was generally consistent with falling, not rising, prices.

Low interest rates and a fairly stable jobs market so far had limited the number of distressed properties on the market, he noted. The subdued tone of the market is also deterring those who might like to sell, but have no need to do so right now. The restricted number of properties for sale has also supported prices generally.

Mr Gardner noted that although rates are very low now, they are likely to begin rising as the Bank of England’s monetary policy committee addresses inflationary pressures. Nationwide calculates that mortgages account for about 85 per cent of household debt and that homeowners are even more sensitive to fluctuations in interest rates now than they were before the recession.

While about 48 per cent of homeowners had variable-rate mortgages before the recession, roughly 62 per cent of them do so now. That is because many who had been on fixed-rate deals rolled over to a standard variable-rate mortgage at the end of their term because there appeared to be little advantage in obtaining a new fixed-rate deal.

Nationwide estimates that about a quarter of all mortgages are on SVR terms.

That means that far more homeowners would feel the effects of a rate rise than they might have.

The Nationwide Index also points to sharp disparities in house price performance between regions. Over the quarter to the end of March, Yorkshire and Humberside – which has consistently shown up as among the weakest regions for house prices on several housing indicators – emerges as the best performer with prices up 3.4 per cent when compared with the first quarter of 2010.

In London, prices are up 2.1 per cent compared with the first quarter of 2010.

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