Nationwide: House prices rise 0.9% in June

"At £156,442, the average house price across the UK was still 9.3% lower than a year ago, but this marks the first time since July 2008 that the year-on-year fall has been in single digits.

"The three month on three month rate of change – a smoother indicator of the short-term price trend – turned positive for the first time since December 2007 to stand at 0.9%, up from -0.4% in May.

"If the pattern of price movements seen in the first half of the year is repeated over the second half, then prices could show only a small single digit fall for 2009 as a whole. This would represent a stark shift from trends seen at the turn of the year, when most indicators were pointing to a repeat of the large declines seen in 2008.

"House prices have now risen in three of the last four months, suggesting that the improvement that began to
show up in March represents more than just statistical noise.

"What is unusual about the recent trend reversal, however, is that it has taken place against a background of transactions activity that is still very low by historical standards.

"Although it has risen from the all-time record low reached in November 2008, the industry-wide number of mortgages approved for house purchases is still 55% below its long-run average and 33% below the trough reached in the 1990s downturn.

"Normally, such a low level of house purchases would be associated with falling house prices. Alongside the low level of mortgage approvals, however, there continues to be a relentless drop in the stock of property available for sale, as potential sellers and builders have responded to depressed demand conditions by reducing the supply of property coming onto the market. As a result, prices have been able to stabilise even in the face of very low demand."

"While it is encouraging to see that prices are no longer seeing steep falls, there are still many obstacles in the
way of a genuine and sustainable price recovery.

"To begin with, abnormally low supply levels are unlikely to last forever, as the recent price increases should make previously hesitant sellers feel more confident about marketing their properties. Additional supply is also likely to come from homeowners who see their financial position impacted by higher unemployment and lower incomes. With the stock of property available for sale likely to eventually increase, house purchase demand will need to rise more convincingly from current levels to prevent a possible relapse in price levels.

"At first sight, there is quite a lot of room for demand to rise further, given that the current level of transactions is
still well below the historical average.

"However, there are good reasons to be cautious about expecting a swift recovery to pre-crisis norms. Firstly, although estate agents have been reporting a steady rise in the number of buyer registrations for some time now, this increase in the inquiry pipeline has not yet led to large increases in transaction volumes, because credit criteria remain significantly more restrictive than in the years leading up to the downturn. Rising unemployment and associated job insecurity are also limiting the extent to which enquiries can translate into actual transactions.

"Another factor that is vital to demand levels is housing affordability. Following the house price and interest rate declines of the last two years, initial mortgage affordability as a percentage of take-home pay is now slightly below its longrun
average, suggesting that housing valuations have returned to a more normal level."

Have your say on this story using the comment section below