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House prices rose by 5.9% last year

I would like to take this occasion to wish all our readers a Happy and Prosperous New Year.

 

But the first question to be addressed in 2010 is whether the housing market is going to be happy and prosperous. According to the Nationwide building society, house prices continued to grow for the eighth continuous month in December, rising by 0.4%. This meant that the average price of a house now stands at £162,103 which is an increase of 5.9% on December 2008.

 

According to Matin Gahbauer, Nationwide’s Chief Economist “Few could have foreseen this development at the start of the year, when the near term price trend was still pointing to a repeat of the double digit annual decline experienced in 2008. Although house prices are still 12.2% lower thank their October 2007 cyclical peak, they have now rebounded by an impressive 8.9% since their February 2009 trough.”

 

Recent trends in house prices can be seen in the figure below.

Source: Nationwide Building Society

Source: Nationwide Building Society

 

Why did the market rise so unexpectedly?  There were several reasons for this according to Nationwide. Interest rates were at record lows and even though it was difficult to borrow money, those with sufficient cash were able to come back into the market. This coincided with a very low level of housing supply. This was partly due to the fact that low interest rates coupled with unemployment levels that have been significantly lower than those seen in previous recessions, have reduced the number of “distressed sales”. Also, some of those trying to move have found it easier to rent out their existing property.

 

So, it is the restriction in supply, coupled with the fairly modest increase in demand, which has helped to push prices up. However, there is no real reason why we should expect this trend to continue and to push prices up further. In fact, Nationwide is not expecting any significant changes in price during 2010 in either direction.

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Posted in Housing, Interest rates

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