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House prices firm but slowing

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House price growth has slowed but remained firm in August amid concerns that the market is to level out in the near future as affordability constraints hit buyers' pockets.

High levels of demand has fuelled the strong growth over the past year, but now there are signs that prospective buyers are refusing to succumb to spiralling house prices. As a result, the property inflation rate has slowed and will continue to do so in the near future.

Although this may be cause for concern among people looking to sell their houses in the next three months, the nation's firm economy, which fuelled the strong growth over the last year, should prevent the market from suffering cataclysmic upheavals of the early 1990s.

With the average house across the country price now at £179,043, the Halifax house price index shows that prices rose by just a single point last month leaving inflation for the year at 8.2 per cent, down from 9.4 per cent in June. Halifax's chief economist Martin Ellis said that he expected this trend to continue so that house price inflation will fall to five per cent by the end of the year.

This downturn has been mainly brought about by constraints on demand in the form of rising utility bills and the mortgage rate increase as announced by the Bank of England on August 3rd.

Mr Ellis commented: "There are signs, however, that the market is slowing with an overall increase in house prices over the last three months from May to August of only 0.2 per cent compared with a 2.9 per cent rise in the preceding three months."

However, the good news is that house prices are still rising, even if this growth is much more modest than what homeowners have come expect in recent times. A strong economy underpinned this growth and its overall good performance has been reflected in the figures for recent months.

The latest Office of National Statistics (ONS) figures confirmed that GDP increased by 0.8 per cent in the second quarter of 2006, the largest quarterly gain for two years and above the long-term average of 0.6 per cent. Furthermore, the total number of people in employment has increased by 240,000 over the past year to 28.9 million.

Nevertheless a general slowdown in the market has begun as constraints on demand restrain the growth in house prices.

Howard Archer, economist from Global Insight, said: "We think these mounting affordability pressures will increasingly outweigh the support to the housing market coming from high employment and a relatively healthy economy."

Homeowners will breath a sigh of relief today (September 7th) as the monetary policy committee announced that it is to leave interest rates unchanged.

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