House prices rise at slower rate in October

House prices rose at a slightly slower pace of 0.4% in October, compared to an increase of 0.9% in September, reveals the Nationwide House Price Data

Annual house price inflation turns positive for first time since March 2008 a 2% increase for October from September.

Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said:

"House prices rose for a sixth consecutive month in October, but the strong upward momentum in property values seen over the summer is showing some signs of moderating as we head into the autumn months. The price of a typical property was 0.4% higher on the month in October, compared to an increase of 0.9% in September and 1.4% in both July and August.

"The 3 month on 3 month rate of change, generally a smoother indicator of the near term trend,  dropped back slightly from 3.8% to 3.4%. At £162,038, the average price of a typical UK property was 2.0% higher than a year earlier, representing the first time since March 2008 that the annual rate of change has been in positive territory.

"Over the first ten months of 2009, the seasonally adjusted index of house prices has risen by 4.6%, though relative to the October 2007 peak it is still down by 13.1%."

Nationwide also predict that the Poor GDP figures released earlier this week from the OFT have mixed implications for housing market:

“Preliminary GDP figures released by the Office of National Statistics showed that the UK remained in recession during the third quarter of 2009, defying widespread expectations that the economy had begun growing again over the period. The surprisingly poor figures have mixed implications for the housing market. On the one hand, a deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market's recovery.

Given the poor labour market situation implied by the economy's ongoing weakness, it is difficult to imagine the housing market returning to the buoyant levels of activity and price inflation that prevailed earlier in the decade. On the other hand, the figures mean that interest rates are likely to remain at or near their current record lows for well into next year. As a result, mortgage  affordability will remain relatively favourable for both new and existing borrowers. This should limit the number of distressed sales and cushion the negative impact of labour market weakness on housing demand.

“Notwithstanding the difficult economic situation, over recent months there has been a noticeable shift in consumers' future house price expectations, as measured by the Nationwide Consumer Confidence survey. House price expectations can often be an important short-term driver of house prices and marketactivity, as rising price expectations provide an incentive for potential buyers to bring forward their purchases while falling expectations generally lead to purchases being delayed or prices being bid down more aggressively.

Indeed, the sharp downturn in house prices experienced during 2008 was preceded by a significant drop in consumer expectations for house price inflation, while the price upturn that began in the spring was preceded by an improvement in expectations."