Annualised rate of house price growth shows market stabilising

The unsustainable rate of growth witnessed in the first few months of 2010 began to ease in May, finishing the year at 1%. This compares to a high of 9.1% in April.

The figures are from the Assetz House Price Watch which compiles monthly average figures taken from five of the major house price indices: Halifax, Nationwide, RightMove, CLG House Price Index and LSL Acadametrics.

Annualised growth is the value that would be registered if the monthly rate of change were maintained for a full year. House Price Watch also regularises this data over three and six months, providing a more reliable representation of market trends than individual monthly snapshots

Although the annualised average rates of growth point to future negative growth, the three month annualised rate, which is reflective of more recent house price movements, shows there is a trend towards increasing market stability.

Stuart Law, Chief Executive of Assetz, comments:

“That house prices ended 2010 with positive annual growth of just 1% suggests that concerns about the election and Comprehensive Spending Review had more of an impact on the market than we expected, with the annual growth rate consistently slowing since May.

“However, the three and six month annualised average rates of growth indicate that recent monthly falls in the average house price may well be bottoming out. House prices may continue to pull back slightly in the first few months of this year, as they did in the last quarter of 2010, but we still do not expect to see a ‘double dip’ in the market, which would mean prices falling below the recent trough witnessed in March 2009.

“While consumer concerns over rising costs and unemployment continue to inhibit the market, we expect the actual impact to be limited. In spite of continued monthly improvements to mortgage terms, the banks are still reluctant to lend. However, we are likely to see a major shift in the lending habits of the banks if, as we expect, the Bank of England extends the repayment period for loans made to them under the Special Liquidity Scheme, freeing up money for prospective homeowners.

“Although the recent rise in inflation is unlikely to single-handedly force the Bank of England into increasing interest rates, we do expect these to rise by 0.25% between March and June and perhaps another 0.25% in Autumn. A rise in interest rates will only happen when the Bank is certain of the economic recovery being well underway.

“The acute housing shortage and rental squeeze remain the key medium-term drivers in the property market’s recovery, underpinning prices for the foreseeable future. As positive forces continue to outweigh the negatives we still forecast house price growth of 5% for 2011.”

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