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Nationwide Building Society in its latest housing market update (October) reports that house prices remain 'stubbornly robust' despite weakening demand.
Prices rose by 1.1% in October against 0.7% the previous month, to give a year-on-year increase of 9.7% (9.0%) and an average price of £186,044 (£184,723).
The Society says that although demand is weakening, existing homeowners appear in no rush to sell. Meanwhile, new buy-to-let landlords will need a long investment horizon to realise good returns.
Fionnuala Earley, Nationwide's Chief Economist, notes that while the annual rate of price growth picked up from 9.0% in September to 9.7%, this is still down from a peak of 11.1% in June and was partly driven by base effects.
"The rise in the annual rate temporarily breaks the slowing in price growth we have seen since June, but is unlikely to mark the start of a new upward trend. November and December saw particularly robust gains in 2006, and unless prices perform very strongly for the rest of this year, the annual rate of price growth will resume a downward path.
"The 3-month on 3-month rate of price growth - which helps smooth monthly volatility - edged up only modestly from 1.7% to 1.9%, which is still below the average of 2.2% seen so far in 2007," says Earley.
Earley adds that while some may be tempted to interpret October's numbers as a sign that house prices are immune to deteriorating affordability and tightening credit conditions, such a conclusion would be misguided.
Most leading indicators of housing market activity are continuing to weaken. Indeed, surveyors are reporting the weakest levels of new buyer inquiries in many years and mortgage approvals are falling from recent highs amid weaker demand and tighter lending criteria for riskier borrowers. Slowing demand, however, will not have an immediate impact on prices if homeowners are in no rush to sell.
Meanwhile, new instructions to sell have in fact been falling since May, when there had been a temporary surge of property onto the market.
"Different factors could be driving the low level of instructions, including a reluctance to trade up amid current uncertainties and the fact that low unemployment is limiting the number of forced sales.
"The overall result is that the stock of unsold homes is still relatively low, and this is providing some residual support to prices. The underlying dynamics of the market, however, are clearly not as strong as this time last year," says Earley.
31 October 2007 © Moneyextra.com
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