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House prices up as slowdown looms

8th February 2007 | back to article listings BACK    print this article PRINT

Despite monthly house prices bouncing back to achieve strong growth in January, there were renewed signs last month that a slowdown in the property market is on its way.

Prices jumped by a healthy 1.3 per cent last month according to the Halifax house price index, up from 0.9 per cent negative growth in December. This allowed annual house price inflation to maintain its momentum, reaching 9.9 per cent.

However, the bank believes that the shrink followed by a seemingly strong rise is consistent with a market that is stuttering into a slowdown.

Furthermore, other key indicators emerged last month that suggest all is not rosy for the property investor as 2007 gets underway.

The number of mortgage approvals dropped by 12.5 per cent from 129,000 in November to 113,000 the following month. In addition, new buyer enquiries fell in the last month of 2006 for the first time since May 2005.

Together, these statistics show that the public is less willing to plough their cash into the housing market now than they were in the middle and end of last year when property prices were spiralling upwards.

This is believed to be down to a number of reasons. Average earnings growth is now 4.1 per cent, significantly below the increase in retail prices at 4.4 per cent, meaning that everyday goods and services are becoming comparatively more expensive. This negative earnings growth has only happened at one other time over the last decade.

Secondly, the climate of rising interest rates is perhaps putting investors and first-time buyers off entering the housing market. The Bank of England's monetary policy committee (MPC) has voted to raise rates three times since August and there remains the prospect of further increases as inflation stays well above its target.

In light of the recent research, Halifax's chief economist, Martin Ellis, admitted that annual house price inflation is likely to ease from ten per cent to four per cent by the end of the year.

He said: "Negative real average earnings growth for only the second time in over ten years, combined with higher interest rates and slower economic growth will squeeze householders' finances, causing potential homebuyers to be more cautious and constraining housing demand."

Although the research appears to signal nothing but doom and gloom for the housing market, the MPC declined to raise rates today, employing a 'wait and see' approach towards inflation.

Clearly, the Bank of England's economists believe that there is hope that inflation will be tempered by the previous rate rises without having to put more pressure on investors' finances.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/3275.html. Alternatively, please see our full press release archive.

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