The change has pushed the average house price up to £94,965, and marks a change in the typical housing activity during this time of year.
Alex Bannister, group economist at Nationwide, said: "House prices continue to rise at a sharp pace, with prices up by 1.6 per cent in February. As prices fell modestly this time a year ago, the annual rate of inflation rebounded from 11.7 per cent in January to 14 per cent this month. The market is showing no evidence of a slowdown and house prices may rise more strongly this year than we had anticipated. We will review our forecast for house price growth at the end of March in our Quarterly Housing Review. Economic conditions are currently favourable and this has encouraged strong demand for property. Because supply of new dwellings is limited - typically accounting for just 10 per cent of all house sales - this demand is translating into sharp price rises.
"Homeowners are tending to look for property before placing their own home on the market. This delay is leading to apparent shortages of available property and anecdotal evidence suggests this is a common feature in more buoyant areas such as the South West, East Anglia and London. The last few months have seen a re-emergence of faster price growth rippling out from London to the regions around. Price growth is now fastest in East Anglia, the South West and the East Midlands. London and its surrounding commuter belt have, in contrast, cooled slightly."
The lender attributes this growth to an increase in take-home pay, which is driving demand. Bannister said: "The current buoyancy in the jobs market is helping underpin housing demand. Real take home pay - which determines the amount households can borrow - is growing at its fastest rate for two years. It is not just household income that is a factor, but also how many people are in employment. Despite recent high profile job loss announcements this figure is also holding up, with the proportion of people employed close to record highs. The high level of employment is also a key reason why consumers remain extremely confident. Our expectation is that unemployment will rise this year as the corporate sector attempts to rebuild profitability. However, so far, companies have remained cautious and the 4,000 increase in unemployment over the last four months has been smaller than widely expected."
Bannister said that the other key difference was the continued weakness of the equity markets: "Clearly this is not the full story, because house prices rose by around 10 per cent pa in the early eighties and so a homeowner would have seen sharp growth in their equity. However, current homeowners could be forgiven for expecting similar price increases over the next few years. A more prudent assumption is that house prices will increase over the medium term by at least average earnings growth - by around 4-5 per cent per annum. However, prices have risen on average by 11 per cent pa for the last 6 years. If households expect this to persist then home ownership looks very attractive and demand will remain strong. This is reinforced by the weakness of other assets such as equities. Many have already taken advantage of the increased availability of buy-to-let loans - the CML reported 66 per cent growth in this type of loan last year. Homeowners may also be releasing equity to help their offspring get into the housing market, particularly in the South East where affordability constraints are biting for younger first-time buyers. This decision to buy property is set against a backdrop where house prices are up 14 per cent in the last twelve months compared with a 16 per cent drop in the FTSE All Share Index and an average return of 3.5 per cent on a savings deposit account."
As with other reports issued recently the outlook remains positive as Bannister said: "Although economic conditions will not remain as positive during 2002 as they were in 2001, they will still be supportive of higher house prices and there are no obvious factors which could significantly undermine housing market prospects. Interest rates are likely to be rising later in the year as the Bank of England looks to cool consumer spending faced with higher Government spending, an upturn in the global economy and a potentially declining currency. This will leave GDP growth modestly below last year's 2.4 per cent rate. As the corporate sector strives to improve profitability, we anticipate unemployment will move back above 1 million. For the housing market we believe prices will continue to rise strongly this year, with the ripple effect likely to gather pace. As a result, we expect London and South East price growth to be held back by increasing affordability constraints and weaker bonuses. However, the rest of the country should continue to see double digit price growth as affordability remains good."
