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Halifax reports 1 per cent increase in house prices

Amanda Jarvis

January 9, 2006

Prices rose 2.1 per cent in the final quarter of 2005, confirming a modest recovery in prices during the latter part of last year.

Despite the recovery since last summer, the annual percentage increase in house prices nationally in 2005, at 5.1 per cent, was the smallest for 10 years and significantly below the long-term annual average of 8 per cent. The annual rate of house price inflation slowed in all regions in 2005 with the exception of London where prices rose by 6.7 per cent compared with a 3.9 per cent rise in 2004. House prices increased by less than 10 per cent in all nine English regions for the first time since 1998.

The recent pick-up in prices is entirely consistent with the improvement noted by all the main indicators of housing market activity over the past few months. The number of mortgage approvals to fund house purchase increased for the fifth successive month in November, according to the latest Bank of England figures. The most recent RICS survey reported the sixth successive monthly rise in new buyer enquiries for house purchases in November, marking the longest running period of increases since 2001.

Scotland delivered the biggest gains in house prices last year with a 14.8 per cent rise: the first time that Scotland has recorded the strongest rises in the UK for 15 years. The next biggest increases in 2005 were in Northern Ireland (14.1 per cent), North (9.1 per cent), Yorkshire and the Humber (8.4 per cent) and the North West (7.2 per cent). Two regions recorded small falls during 2005 – East Anglia (-1.0 per cent) and the South West (-1.9 per cent) – marking the first regional annual house price falls since 2000.

Prices in Greater London increased by 3.6 per cent in Quarter four. This was the second successive quarterly rise in the capital, suggesting the beginning of a recovery following a fall between 2004 Quarter three and 2005 Quarter two. The average price in London broke through the £250,000 barrier for the first time in Quarter four (£257,120).

A 326,000 increase in total employment and a 3.6 per cent rise in average earnings over the past year, together with August’s interest rate cut, have underpinned the recent improvement in house prices. Another year of below trend economic growth and the continuing high level of house prices in relation to earnings, however, should curb housing demand and prevent a renewed bout of high house price increases in 2006.

The housing market is expected to be flat in 2006 with modest nominal house price growth and no change in real terms. UK house prices are forecast to rise by 3 per cent, broadly in line with the predicted rise in retail price inflation. The annual rate of house price inflation is expected to increase during the first half of 2006, potentially reaching a peak of 7 – 8 per cent mid year as modest price rises compare with slight falls in early 2005. The annual rate is subsequently expected to fall as prices rise at a significantly slower pace than in the second half of 2005.

Commenting, Martin Ellis, chief economist, said: “House prices increased by 1.0 per cent in December and by 2.1 per cent in the final quarter of 2005, confirming a modest recovery in prices during the latter part of last year. This pick-up in prices is entirely consistent with the improvement noted by all the main indicators of housing market activity over recent months.

Despite the recovery since last summer, the annual percentage increase in house prices nationally in 2005 was the smallest for 10 years and significantly below the long-term annual average of 8 per cent. The annual rate of house price inflation slowed in all regions in 2005 with the exception of London where prices rose by 6.7 per cent compared with a 3.9 per cent rise in 2004.

“An increase in total employment of 326,000 over the past year and August’s interest rate cut, which has helped to keep mortgage payments close to the long-term average as a percentage of a new borrower’s income, have underpinned the recent improvement in house prices. Another year of below trend economic growth and the continuing high level of house prices in relation to earnings, however, should curb housing demand and prevent a renewed bout of high house price increases in 2006,” he added.

The number of mortgage approvals to fund house purchase increased for the fifth successive month in November, according to the latest Bank of England figures. The number of loans, at 115,000, on a seasonally adjusted basis, was 53 per cent higher than in November 2004 and in line with the average levels during 2002 and 2004 when house prices were rising sharply.

The latest RICS survey reported the sixth successive monthly rise in new buyer enquiries for house purchases in November, marking the longest running period of increases since 2001. RICS also reported the largest monthly increase in newly agreed sales for almost two years. An accompanying fall in the number of new instructions in recent months has resulted in tightening in market conditions.

Halifax Estate Agents have experienced a pick-up in sales in recent months with sales higher than a year earlier in October and November.

Property transactions in England and Wales were higher than 12 months earlier in September, October and November. This contrasted with annual falls throughout the first eight months of 2005, according to the latest HM Revenue & Customs statistics.

Housing starts increased by 5.6 per cent in Quarter three on an annual basis (source: ODPM). This was the second consecutive quarter of growth following a mild downturn at the start of 2005.

Total employment in the UK increased by 58,000 in the three months to October, reaching a record of 28.81 million. Over the past year, the number in employment has risen by 326,000, according to the most recent ONS data. Average earnings have increased by 3.6 per cent during the last year. The high, and increasing, level of employment, together with robust earnings growth, has underpinned the improvement in housing demand in recent months.

The latest Bank of Scotland UK Leading Indicator suggests that UK economic growth will stabilise at the start of this year before accelerating during Quarter two and Quarter three. Overall, GDP is estimated to have increased by 1.6 per cent in 2005 with the UK economy expected to record its sixth successive quarter of below long-term average growth in 2005 Quarter
four. Growth is forecast to pick up next year, but we expect GDP growth – at 2.2 per cent – to remain below the UK’s long-term average rate of 2.5 per cent. Relatively slow economic growth will curb housing demand and prevent a renewed surge in house prices.

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