Key points
- House prices rose by 1.7% in October
- All Houses, All Buyers Index (1983=100)
- Index (seasonally adjusted) 597.4
- Monthly Change 1.7%
- Annual Change 8.6%
- Standardised Average House Price (seasonally adjusted) £184,593
House prices rose by 1.7% in October. There have, however, been indications of a weakening in activity at earlier stages of the house-buying process, suggesting that house price inflation may slow in the coming months.
The latest RICS survey shows signs of a slowdown in activity with virtually no change in sales between 2006 Q2 and 2006 Q3 whilst growth in new buyer enquiries slowed sharply in September compared to the previous month. The House Builders' Federation has also reported an annual fall in the numbers looking at new homes for the third time in four months.
The annual rate of house price inflation increased to 8.6% from 8.0% in September, partly because the monthly rise in October 2005 was low (0.3%).
Sound economic fundamentals and a lower stock of properties available on the market have put upward pressure on house prices. The UK economy continued to grow at slightly above its long-term average pace of 0.6% per quarter in 2006 Quarter 3 with gross domestic product (GDP) increasing by an estimated 0.7% for the fourth successive quarter.
Significantly higher utility bills and the increase in mortgage rates over recent months – both in fixed and variable rate products – are expected to constrain housing demand, causing the annual rate of house price inflation to ease over the coming months.
Commenting, Martin Ellis, Chief Economist, said:
"House prices increased by 1.7% in October. There have, however, been indications of a weakening in activity at earlier stages of the house-buying process, suggesting that house price inflation may soon begin to slow. Significantly higher utility bills and the increase in mortgage rates over recent months – both in fixed and variable rate products – are expected to constrain housing demand, causing the annual rate of house price inflation to ease over the coming months."
Activity increased again in September ……
Following signs of a levelling off in activity during June to August, the number of loans approved for housing purchase increased by 5% in September to 126,000 (seasonally adjusted) from 120,000 in August.
The latest RICS survey, however, shows signs of a slowdown in activity. Completed sales have been broadly flat over the past six months with virtually no change in sales between 2006 Q2 and 2006 Q3. In addition, growth in new buyer enquiries slowed sharply in September compared to the previous month, indicating a possible weakening in demand.
The House Builders' Federation has also reported an annual fall in the numbers looking at new homes for the third time in four months, suggesting a weakening in demand at the early stage of the house-buying process.
Sound economic fundamentals underpin the housing market ……
Recent ONS figures show that the UK economy continued to grow at slightly above its long-term average pace of 0.6% per quarter in 2006 Quarter 3 with gross domestic product (GDP) increasing by an estimated 0.7% for the fourth successive quarter. The annual rate of growth increased to 2.8%, its highest since Quarter 3 2004.
Employment - a key driver of housing market conditions – also continues to rise with the number in employment increasing by 255,000 over the past year, according to the ONS. The total in employment stands at a record 29.015 million.
… but higher interest rates and utility bills to cause house price inflation to ease over the coming months
Significantly higher utility bills and the increase in mortgage rates over recent months – both in fixed and variable rate products – are expected to constrain housing demand, causing the annual rate of house price inflation to ease over the coming months. A recent consumer survey reported a 34% increase in the average domestic gas bill in the past year accompanied by a 14% rise in electricity bills.*
