House prices on the rise again

House prices rose last month, confirming the "modest recovery" in the housing market, Halifax Building Society reported yesterday.

The increase in February followed a drop in prices the previous month. This turned out to have been a one-off adjustment for the big gains at the end of last year, the society said.

"The housing market is continuing to recover at a moderate pace. The annual rate of house price inflation is in line with our forecast of 7 per cent for the fourth quarter of 1997," it said.

The increase in the 12 months to February was 6.8 per cent, down from 7.1 per cent in January. The average house price now stands at pounds 66,612.

There were sharp fluctuations month-to-month in the price of new housing, Halifax said.

In addition, prices paid by first-time buyers jumped by 2.1 per cent in February following a 2 per cent fall the previous month.

The Halifax figures were more or less in line with Nationwide's house price index. Last week it reported a 0.7 per cent rise in February, but put the annual rate of inflation at a higher - and rising - rate of 8.5 per cent.

Although mortgage lenders are keen to play down the dangers of an unsustainable boom in the housing market, some economists think house price inflation might climb into double digits later this year. It is already well past this point in Greater London.

Higher earnings growth, along with the prospect of income tax cuts next month and windfalls of free building society shares later in the year, are likely to boost house purchases.

In addition to the effects of high consumer confidence and pent-up demand to move house after the long slump in the market, some parts of the country are experiencing a severe shortage of homes for sale. Last week Nationwide said this was "causing upward pressure on prices in certain sectors of the market and frustrating many potential buyers".