April Showers Cool House Price Growth: UK Property Shop News

Nationwide April House Price Review

* House price inflation slowed sharply to 0.1% in April, from 1.1% in March
* Annual house price growth fell back below 5% in April
* £1 a litre pump prices will hit consumers' spending
* Commodity prices reach record highs, but housing outperforms over the long term

Headlines April 2006

Monthly index * Q1 '93 = 100 325.0
Monthly change* 0.1%
Annual change 4.8%
Average price £163,573
* seasonally adjusted

Commenting on the figures Fionnuala Earley, Nationwide's Group Economist, said: "The rate of growth of house prices cooled sharply in April. Prices increased by only 0.1% in the month, significantly more slowly than the 1.1% increase in March. The annual rate of house price growth fell back below 5% in April to 4.8%. The price of a typical house in the UK is now £163,573, almost £7,500 more than at this time last year. This is equivalent to a price increase of just over £20 per day over the last twelve months.

House prices cool, but demand remains fairly resilient

"The cooling in prices in April was not unexpected given the surge in March and shows the wisdom of not placing too much emphasis on one month's set of numbers. However, the underlying picture remains reasonably healthy as demand conditions have remained quite firm. While the number of house purchase approvals fell back sharply in February, from 121,000 to 115,000, this remains a buoyant level of activity, well above the ten year average of about 100,000 per month.

Activity to fall towards its long term trend

"On the supply side, estate agents are reporting some increased levels of supply on their books as new sellers come to market - perhaps encouraged by the recent upturn in prices. But supply is still at a relatively low level and in spite of strong buyer interest, this, coupled with higher house prices choking off some demand, suggests that activity will fall towards its longer term average over the coming months. Looking forward, we continue to expect some month to month volatility in the house price numbers as the market settles down after the unseasonably strong winter months and adjusts to the economic conditions on the horizon. While we do not expect any early move in interest rates that would stimulate or dampen the market, there are other economic factors that will affect it through their impact on disposable income and confidence.

Petrol at £1 a litre will hit pockets

"Oil prices reached record highs in April and this is being swiftly passed on at the petrol pumps. Prices look set to breach £1 per litre in some parts of the country any day now and this will clearly hit consumers' pockets and their states of mind. Utility bills are also rising and this has been factored into the rise in consumers' inflationary expectations picked up in the latest Bank of England survey. For the Bank of England this is double edged. Higher oil prices will feed into inflation and will put upward pressure on interest rates. On the other hand, higher oil prices will affect the amount of disposable income that is available for general consumer spending. As the Bank's growth forecast is dependent on a return of consumer spending, a serious threat to this will affect demand and put downward pressure on rates. As always the labour market is key and the latest increases in unemployment, along with further redundancy announcements, are likely to add to the softening in the consumer confidence measures we have seen since the start of the year. All in all we think this adds up to a mildly weakening, rather than accelerating, profile for house price growth for the rest of the year.

Oil and gold prices reach record highs

"Oil and gold have hit the headlines this month with prices of each reaching record highs. These price explosions have brought annual price inflation of these commodities up to over 40%. Silver has also increased dramatically, rising by over 70% in the last year. This makes the recent upturn in annual house price inflation to around 5% in the last two months look decidedly modest.

...but housing outperforms in the longer term

In spite of the very strong recent and historical rallies in commodity prices, including the two OPEC oil price crises in the 1970s, housing has still outperformed over the longer term. Since 1970 house prices have increased by over 3,500%, compared to the increase in oil prices of around 1,750%, gold of around 1,550% and silver of about 500%."