Housing stays buoyant as Nationwide reports biggest price rise since 1993

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The Independent Online

House prices rose at the fastest rate for eight years last month, raising hopes that consumers will not be deterred from the market by fears that the US terrorist attacks will trigger a recession.

House prices rose at the fastest rate for eight years last month, raising hopes that consumers will not be deterred from the market by fears that the US terrorist attacks will trigger a recession.

Nationwide building society, the UK's second-largest mortgage lender, said prices jumped 2.8 per cent in September, the largest monthly rise since June 1993. The figures, which were greeted with scepticism by some observers, took the value of the average home to £92,432, 14.6 per cent higher than a year ago.

But signs of a housing boom contrasted with declines in manufacturing output and business confidence, highlighting the dilemma the Bank of England faces when it meets to set interest rates tomorrow.

Nationwide said it was surprised by the pace of the rise, and admitted it might have to revise up its forecast for this year from its current 11 per cent. But it stuck by its forecast of an eventual slowdown in the housing market, led by London and the South-East, as the recent wave of lay-offs led to higher unemployment. Alex Bannister, Nationwide's chief economist, said: "The numbers were stronger than we would have expected but we did not pick up any real impact from the dreadful attacks. It is possible the housing market may slow more quickly and recover more slowly than we originally envisaged but in reality it is too early to forecast with any confidence."

Nationwide said it expected a "sharp" slowdown in London on the back of the economic slowdown, the devastation of New York's financial sector and a slump in tourism. But there was no sign of a slowdown in its regional breakdown for the three months to September. London was the second fastest growing region at 14.7 per cent. Five London boroughs, four of them in the deprived East End, saw rises of more than 25 per cent. Nationwide's figures are based on mortgage offers and, therefore, unlikely to reflect the impact of 11 September. However, a survey of 4,000 estate agents from Hometrack showed the market slowed for a fourth month in a row in September with a 0.4 per cent rise. However, the Bank of England said new mortgage approvals were 112,000 in August, up from 111,000 and the highest level in the current economic cycle. Mr Bannister said the terror attacks would eventually have an impact on house prices. "But much depends on the outlook for the US economy and its impact on other economies around the world," he said.

Separate figures published yesterday failed to paint a clear picture. According to one survey, there is little sign of rising unemployment. The number of firms planning to take on new staff outnumbered those planning to make redundancies by a margin of three to one, recruitment agency Manpower said. "Despite much talk of recession, employers on the ground remain optimistic," said Iain Herbertson, its managing director.

Steven Bell, chief economist at Deutsche Asset Management, said unemployment was the key to the housing market and consumer demand in general. "The consumer responds much more to what is happening directly to their finances and relatively little to dramatic events on TV," he said.

On the other hand manufacturing suffered its seventh month of contraction in September. Output, new orders, and job numbers all fell, the Chartered Institute of Purchasing and Supply said. But the report showed the pace of decline was slowing and CIPS said that few firms had linked falling demand to the recent terrorist crisis. Meanwhile, business confidence tumbled to a five-year low after the terrorist attacks, the Institute of Management said.

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