* The Nationwide house price index jumped a whopping 3.1 per cent in February following the 0.7 per cent gain in January. As a result, the year-on-year rate of increase accelerated to 17.1 per cent, its highest level since July last year. Significantly, the mortgage lender acknowledged that turnover remains at a historically low level. It also pointed to signs of a strengthening in the property market in the south of the country while stating that the strong momentum in house prices in the more affordable areas has continued into the new year.
* Fundamentally, we continue to believe that the improving employment picture is a key factor underpinning the housing market at the present time. Moreover, while interest rates are now rising and house price to earnings ratios are hitting record levels, actual affordability in terms of monthly mortgage payments is still far from stretched. That is, of course, not necessarily the case for first time buyers who are needing to find ever larger deposits. Nevertheless, at this point there is little evidence of a sharp divergence in prices being paid by existing owner-occupiers and first time buyers.
* Consumer confidence numbers released this morning tell a rather different story showing the headline index slipping back into negative territory. This drop was driven by a deterioration in expectations (both personal and economic) for the next twelve months as well as a decline in the numbers believing this to be an appropriate time to make major purchases.
* We have doubts about the reliability of the monthly moves in the GfK series. It is worth noting that the three month moving average is still picking up which is consistent with our analysis. The key factors driving this trend are the stronger labour market and re-acceleration in house price inflation.
* Meanwhile, the latest CBI survey paints something of a mixed picture. On the one hand, total order books have risen to their best level since January 2001. However, both output and price expectations both slipped back in January albeit following pronounced improvements in both series over the past few months.
* The CBI also produced its latest economic forecasts this morning, which take a generally upbeat view of the outlook. They expect economic growth to reach three per cent this year before settling back to 2.8 per cent in 2005. Base rates are projected to rise to 4.5 per cent this year and five per cent next year.
We have broad sympathy for the CBI’s conclusions but suspect that following yesterday’s GDP revisions and today’s house price index, that the risk on both counts is on the upside for this year.
