House price rises power into 'unthinkable'

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The Independent Online

House prices are now higher than at the beginning of the year after rising for the third month in a row during July, figures showed today.

The average value of a UK home rose by 1.3 per cent during the month to stand at £158,871, according to Nationwide.

The building society said prices are 1.3 per cent higher over the seven months of 2009 so far and could even finish slightly higher for the year as a whole.

"Only a few months ago such an outcome would have appeared unthinkable," Nationwide's chief economist Martin Gahbauer said.

Average prices are now 6.2 per cent lower than a year ago - a big improvement on the 9.3 per cent year-on-year decline registered in June.

The data follows Bank of England figures yesterday showing the number of mortgages approved for house purchase rising for the fifth month in a row during June to the highest level for more than a year.

According to Nationwide's figures, February represented the lowest point of the market with prices registering a 17.6 per cent annual decline.

The building society said house prices had been "remarkably resilient" so far this year despite recession and rising unemployment.

This could be because the sharp fall in transactions last year produced a pool of buyers who were ready to buy but did not want to do so at the height of the banking crisis, Mr Gahbauer added.

"When it became clear that Government interventions around the globe had stabilised the banking system and prevented a worst-case economic outcome, some of this pent-up demand re-entered the market, with the added assistance of very low interest rates," he said.

But the building society also warned that the current run for the property market - with prices up in four of the last five months - may not be sustained.

This is because at current rates prices would become out of kilter with average earnings, while rising unemployment would force more households to sell up.

"It is unlikely, therefore, that price increases can be sustained for long at the very strong rate observed over the last few months." he said.

Nationwide also warned of a long-term shortage in housing supply because of the deep recession in the building industry.

It expects only about 100,000 homes to be built in 2009 - the lowest level on record - as building work slides well below the annual increase in the number of UK households.

"As it is likely to take time for the economy and housing construction to recover to pre-crisis levels, the potential exists for a considerable housing shortfall to develop over the next few years," Mr Gahbauer said.