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Expectations exploded as housing boom continues

30th November 2006 | back to article listings BACK    print this article PRINT

Fears that the booming UK housing market would tail off or even crash were quashed today with the release of the month's first major house price index.

Research by Nationwide revealed that house prices jumped by 1.4 per cent in November causing the annual rate to swell to 9.6 per cent, up from eight per cent last month.

This works out as the highest rate of annual inflation since February last year and the average UK homeowner will revel in the knowledge that their investment has risen by £15,046 over the last 12 months, equivalent to £41 per day.

Back in September the growth of buyer inquiries fell, prompting analysts to predict that demand would not hold up in the long term meaning that prices would begin to fall. However, these fears have proved unfounded due to the lack of supply within the market.

Fionnuala Earley, Nationwide's group economist, commented: "Stocks of properties for sale are at a two-year low leaving buyers chasing relatively few properties. With instructions still falling, there is no immediate improvement in supply conditions in sight."

Furthermore, it looks as if the strong fundamentals that have underpinned the economy and precipitated the current boom are going to continue as we move into 2007.

The Bank of England's monetary policy committee expects the economy to grow by around three per cent next year and analysts are not predicting a rise in interest rates in the short-term future.

Ms Earley added: "While a rate rise cannot be ruled out, it seems less likely than it did a few weeks ago and we maintain our view that interest rates are likely to have peaked at five per cent.

"With growing employment and steady growth of earnings, forced sales will be kept to a minimum. And with the UK's slow housing supply response, demand in the market is likely to remain fairly firm for the time being."

However, Global Insight is not so optimistic. Although the economic information analyst said that it was "surprised by the strength of house prices in recent months", its economists do not feel that the current rate of growth will maintain into the long-term.

Howard Archer, chief UK and European economist at the company, said: "We still believe that the growing affordability pressures resulting from higher interest rates and elevated house prices will increasingly feed through over the coming months to squeeze buyers out of the market and limit house price rises."

He added that if prices remain buoyant over the coming months, the Bank of England may be forced to consider another rate rise.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/3135.html. Alternatively, please see our full press release archive.

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