House prices now at the same level as September 2008

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House prices rose by 0.9% in September, the fifth consecutive monthly increase, and are now at the same level as September 2008, according to the latest figures from Nationwide.

Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said:
“The recent upward momentum in house prices has continued into September, with the price of a typical house increasing by 0.9% on a seasonally adjusted basis. The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – rose from 3.3% in August to 3.8% in September, the highest level since August 2004. At £161,816, the average price of a typical UK property was essentially unchanged from a year earlier, representing the first time since March 2008 that the year-on-year rate of change has not been negative. Over the first nine months of 2009, the seasonally adjusted index of house prices has risen by 4.1%, though relative to the October 2007 peak it is still down by 13.5%.

“The further increase in house prices is very much consistent with improvements in a broad range of economic and financial indicators over the last few months, all of which suggest that the most intense phase of the recession and financial crisis has probably passed. However, given that the housing market still faces considerable headwinds in the form of high unemployment, restrictive credit conditions and an impending withdrawal of the stamp duty holiday, it would be surprising to see house prices continuing to increase at the very strong rate seen in recent months.

“One reason to remain cautious about the outlook for house prices is that turnover in the market is still well below normal levels. The housing turnover rate – measuring the percentage of the private sector housing stock changing hands on an annualised basis – fell to only 3% at the end of 2008. Although it has since recovered to nearly 4%, there is still quite some way to go before turnover reaches the pre-downturn level of between 7% and 8%. Lead indicators such as mortgage approvals for house purchase suggest that turnover should continue edging higher over the next few months, but at the current rate of increase it would take another 18 months for it to reach pre-downturn levels.

“There is usually a fairly strong correlation between housing turnover and house price inflation. Under normal circumstances, the current turnover rate would probably still be too low to be consistent with positive house price inflation. However, during periods when only a small proportion of the housing stock is available for sale, even a relatively low turnover rate can be consistent with increasing house prices. There is widespread evidence that this has been the case so far this year, which explains much of the rebound in house prices since the February trough.”

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