House prices in August were 4.6% higher on an annual basis as measured by the average for the latest three months against the same period a year earlier. This was slightly below the 4.9% increase in July, continuing the recent downward trend and compares with a high of 6.9% in May.
Prices in July were marginally lower (-0.5%) than at the end of 2009. The current average house price of £167,953 is 9% above its April 2009 low, but remains 16% below its August 2007 peak.
Housing market activity broadly stable. Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase in the three months to July – a leading indicator of completed house sales – were slightly higher (1%) than in the previous quarter, on a seasonally adjusted basis.
The number of approvals has been remarkably stable this year, keeping within a range of 46,000-50,000 per month. In total, the number of approvals during January to July was 9% higher than in the same period last year.
The improved economy, strengthening labour market and low interest rates are all supporting housing demand. GDP increased by 1.2% between the first and second quarters of 2010. The recovery in economic activity – whilst unlikely to be sustained at this pace - helped to boost the number of people in employment by 184,000 between Quarters 1 and 2, according to the latest ONS figures.
The combination of lower house prices compared with mid 2007 and interest rate reductions has created a significant improvement in affordability for those buyers wanting to take their first steps onto the property ladder. Indeed, the proportion of a potential new first-time buyer's disposable earnings devoted to mortgage payments has almost halved from a peak of 50% in mid 2007 to 28% - below the 34% average over the past 25 years.
Improving home affordability has helped to boost the number of first-time buyers, which was 28% higher in the first half of 2010 compared with the same period last year – 94,600 against 74,000 - according to the latest CML figures.
Commenting, Martin Ellis, housing economist, said:
"House prices increased by 0.2% in August. This, together with July's rise, has reversed much of the modest decline in the three preceding months. Prices are now at a very similar level to that at the end of last year. Activity has also been largely static since the start of the year.
"These developments suggest that the market is broadly stable with house price inflation having cooled since last year when supply shortages helped to push up prices. The improved economy, strengthening labour market and low interest rates are all supporting housing demand. We expect that UK house prices will remain static overall in 2010."
Mark Pilling, Managing Director, Spicerhaart Corporate Sale, comments:
“The latest rise from Halifax should not be taken out of context, coming hot on the heels of a reported fall in prices in the same month from Nationwide last week. These differences in reporting are one of the reasons the government has stepped in to look at the validity of each house price index in turn.
“The supply and demand factors affecting house prices are now more complex than ever and differ for each localised market. It is likely we will see fluctuating values over the next year or so with different regions faring better than others.
"Lenders and surveyors should take more notice of what is going on in the local area rather than put too much weight to the overall UK picture presented by these indices."
