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November: house prices continue to rise

8th December 2006 | back to article listings BACK    print this article PRINT

House prices continued their seemingly relentless surge upwards in November in spite of the quarter point interest rate rise earlier in the month; but new research suggests that a gradual slowdown may be around the corner as we move into 2007.

Monthly property price inflation stood at 1.7 per cent last month according to new figures from Halifax, marginally down from the 1.8 per cent in October but considerably higher than the 1.3 and 1.2 per cent recorded in August and September respectively.

This brings annual prices up to 9.6 per cent, the highest annual growth since the final quarter of 2004.

Such has been the strong and steady long-term health of the UK housing market that it has now recorded 57 successive quarters of growth, meaning that property investors have seen huge rises over the last decade for simply owning a home.

Although it has been much touted that the boom of late is due to a chronic deficit in supply with respect to demand, analysts have often overlooked the strong fundamentals which have underpinned the market for so long.

High employment, low inflation and historically low interest rates have all helped property to collectively grow to such a level where the average UK home now costs £187,995.

However, it is in these factors that Halifax economists foresee a potential cooling of the market.

The Office for National Statistics reports that real average earnings have slowed markedly over the last six months. Earnings are now rising at just 3.9 per cent each year, just 0.3 percentage points ahead of the headline measure of inflation.

Coupled with the recent rise in rates, to the highest level for five years, and ever increasing winter utility bills, the squeeze on disposable income may lead some potential investors to sit back and wait until economic conditions improve before they plough their hard-earned cash into the property market.

Howard Archer, chief UK economist at financial analyst firm Global Insight, agreed with this appropriation of the future market.

Although he admitted that "the strength of house prices in recent months has taken us by surprise", Mr Archer claimed that "growing affordability pressures" would "squeeze buyers out of the market and curb house price rises" over the coming months.

In concurrence with a recent survey from the Royal Institution of Chartered Surveyors, which found a fall in surveyors' confidence in housing sales for the third successive month, he added that "there are also increasing reports that people are finding it more difficult to trade up the housing ladder".

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