David Smith: Home Economics
An important milestone has been passed with the Nationwide building society’s report last week that house prices are back at the levels of a year ago. It has been heading that way for some time – the low point for prices was reached in February – and it should be followed in a month’s time by news that prices are higher than their level a year earlier.
The Nationwide’s numbers showed a 0.9% rise in September, to an average house price of £161,816. On a seasonally adjusted basis, prices are up by 7.2% on February and by 4.1% on December last year, so are on course for a 2009 rise. They are still 13.5% below their peak, which was reached in October 2007, before the mortgage tabs were abruptly turned off.
What does this tell us about the outlook? All the usual health warnings apply about limited housing supply and the impact of rising unemployment. I have noted before, however, that markets were thin when prices were going down. It would be unusual, moreover, to have another big bout of falls when the economy is recovering.
The Nationwide figures also tell us that worries about the recovery running out of steam were misplaced. They emerged after data from the Bank of England indicated that monthly mortgage approvals slipped back in August, after eight consecutive increases. The fall was small, from 52,404 to 52,317, but was followed by a survey showing that lenders tightened mortgage availability over the past quarter.
It looks to have been a false dusk, however. Despite the small dip in August, approvals remain well above earlier lows; up by 63% on a year earlier and by 91% on their low point last November. Although the number of approvals edged lower, their value rose, from £7.1 billion to £7.2 billion. Meanwhile, the same Bank of England survey that showed mortgage availability had tightened over the past three months suggested that more loans would be available over the next three.
House prices will not carry on rising at their recent rate, but last week’s news was significant. Consumer confidence, according to the latest survey by GfK NOP, is at its highest since January 2008. As long as people feel better about themselves and the economy, they will feel better about buying houses.
– The number of properties on sale in London rose by 28.6% last month, as potential vendors responded to signs of rising demand, says Haart estate agency. Actual sales rose by 0.9%. First-time buyers are starting to be drawn into the market by recent price falls: their numbers jumped by 21%. “as prices have bottomed out and are starting to rise again, first-time buyers can see this is the best time to take advantage of the low prices and improved liquidity in the mortgage market,” said Russell Jervis, the agency’s managing director.
– The price of farmland rose by 3.2% in the third quarter of this year – the second such quarterly rise – to an average £4,973 an acre, leaving it just £125 an acre below the peak reached last summer, according to Knight Frank. The agency says supply is limited and prices remain variable, with the best land achieving a significant premium.
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