Money News
Latest figures from the Nationwide Building Society appear to show the recent interest rate hikes beginning to take their toll. Despite house price growth returns to double digits underlying demand is weakening as higher interest rates and stretched affordability are causing demand to wane. In the buy to let market however supply constraints and buy-to-let interest will support prices in the short term, says the society.
February's 0.7% increase, giving a 10.2% year-on-year rate, contrasts with January's 0.3% rise (9.3% year-on-year). The price of a typical house now stands at £174,706. Or more than £16,000 higher than this time last year and the equivalent of a rise of more than £40 per day.
Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said that whilst the Bank of England spared homeowners a second consecutive rate rise in February its latest forecasts suggest that one more rise could still be on the cards. While the three recent rate rises now seem to be starting to take their toll on the market, not all indicators are cooling just yet. Buyer interest and mortgage demand are waning, but the supply of properties coming onto the market remains low.
"This lack of supply will mean that house price inflation will remain firm for a while longer, before gradually easing," she notes.
Worth adding is that mortgage approvals for house purchase recorded their largest monthly fall since the early 1990s and were down from 128,000 in November to 113,000 in December. In addition, estate agents have now recorded two successive months of falling buyer enquiries after 18 months of solid gains.
Earley notes that house price gains in January and February have now averaged 0.5% per month, significantly below the 1.1% average in the second half of 2006. However, it is difficult to know whether this is already a reflection of weaker demand or whether it reflects normal volatility around a turning point in the market. "Certainly, the 3 monthly growth rate has fallen from 3.3% last month to 2.9% now, but even if monthly house price gains remain at around 0.5%, the annual rate of house price growth will remain close to 10% until late spring due to the relatively weaker performance of prices this time last year," she says.
By the second half of 2007 the Nationwide expects to see a more pronounced slowdown in the annual rate of house price growth. This will be a reflection of higher interest rates and stretched affordability curbing the demand of residential buyers, along with some slowdown in buy-to-let demand. However, it does not expect a severe fall in confidence, even if interest rates were to rise once more, due to the continued strength of the economy and the labour market in particular.
28 February 2007 © Moneyextra.com
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