Nationwide Building Society - June 2006 House Prices
Headlines
* House prices grew by 0.3% in June, the third month in a row of subdued growth
* Annual house price growth now at 5%
* Affordability constraints will continue to bite
* Supply constraints will continue to support house prices
Commenting on the figures Fionnuala Earley, Nationwide's Group Economist, said: "House prices grew by 0.3% in June, the third consecutive month of flat growth. The three monthly growth rate clearly shows the slowing trend in house price inflation since March. Prices increased by 1% in the three months to June, compared with 1.6% to May and 2.1% in the three months to March. The annual rate of growth increased slightly to 5% in June, but only because there was a fall of 0.1% this time last year. The price of a typical house is now £165,730, around £8,000 more than this time last year and equivalent to a rise of almost £22 per day.
"The macroeconomic and interest rate outlook seems fairly stable. Growth is strengthening and while unemployment increased for the fourth successive month in May, there are still increasing numbers of people in work. The latest set of minutes from the MPC was full of 'ifs' and 'somewhats' illustrating the significant, yet finely balanced risks to inflation and hence interest rates. While financial markets are still pricing in an increase in rates by the end of 2006 and a further increase in 2007, the tone of the MPC was very measured, suggesting that they are still in wait and see mode and that interest rates are likely to remain at 4.5% for some time to come.
"Estate agents' and house builders' data record buyer and seller interest at the start of the house buying process. These show signs of more buoyant demand in May after a weak April. This could be a response to faster house price growth through the spring, and may support further price rises in the short term. However, focus on the World Cup may mean lower activity in June which would seem more in line with house purchase approvals data from the Bank of England which has shown a softening trend.
"However, while demand seems fairly stable, the deterioration in affordability and its likely impact cannot be ignored. Mortgage payments for someone on average earnings now take up around 42% of take home pay compared with around 32% three years ago. While earnings growth remains lower than house price growth the ability to pay constraint will continue to bite. So too will lending constraints in terms of income multiples and LTV limits, especially for young first-time buyers.
"At current assumed rates of household formation there is already excess demand for housing in England, regardless of the tenure. Given that around 80% of people in the UK aspire to home ownership and the current rate of ownership is 71%, there is most pressure on the owner-occupied sector."
