Rainy June Fails To Dampen Housing Market...House prices shot up 1.1% in June, the fastest rise this year, according to the latest housing report from Nationwide. However, increases in interest rates mean that the housing market is likely to cool in the second half of 2007.
House prices increased at a rate of £50 a day during June, sending the average house price over £184,000 and pushing the annual pace of growth to 11.1%, the highest level for two years.
This bounceback came as a surprise as signs elsewhere in the economy indicated that the housing market was cooling down following recent increases in interest rates. According to data released by the CBI, the high street saw its quietest month since last November, whilst leading property developers Wimpey and Taylor Woodrow warned that house building activity was set to decline in the second half of the year.
The recent spike in house prices will only add further pressure to the MPC to increase interest rates. With the financial markets currently predicting another 0.25% rise in the base rate next week, it’s unlikely that this month’s strong growth in house prices will continue. Economists predict that the annual rate of house price growth will slow to 5%-8% by the end of the year.
Yet a dramatic fall off in house prices appears unlikely for two reasons. Firstly, many potential buyers currently priced out of the market are likely to rush back in as soon as prices start to fall. Secondly, a recent report by a new housing market think tank points to a fundamental imbalance in the UK housing market. The report by the National Housing and Planning Advice Unit acknowledged that rising interest rates could slow down house prices over the next few years, but emphasised that a long term housing shortage will prevent prices in the UK from falling substantially.
June also saw the gap increase between the London property market and the rest of the country, with house prices in the capital now rising 6% faster than the national average. According to data recently released by the Land Registry, buying a house in London will now set you back over £335,000 on average, compared to £180,594 for the rest of the country.
Adela Read
Financial Journalist
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