Double digit growth in house prices

2006 turned out to be a good year for house prices with growth of 10.5% according to the Nationwide.

The price of a typical house increased by the equivalent of 45 pounds per day in 2006 - three and a half times faster than the 12.50 per day in 2005 - bringing the price of a typical house up to 173,746 pounds.

Fionnuala Earley, Nationwide’s Group Economist, said : “There are still few signs that the rate of house price growth will moderate in the very short term. Evidence from estate agents continues to show that supply conditions are tight with fewer sellers coming to market. The stock to sales ratio - a good leading indicator of house prices - has continued to increase suggesting a few more months of firm price growth.

Affordability
However, we expect worsening affordability and recent interest rate hikes to
affect the levels of activity in the market in the coming months. This will feed into a slower rate of house price growth in the second half of next year.

The number of estate agents reporting an increase in new buyer enquiries fell back sharply in November, and while this is a more volatile indicator of house purchase approvals, it does lend some support to the view that we will soon see the start of some weakening in demand.”

2007 Outlook
“The rate of house price growth in 2007 is expected to be relatively robust at between 5% and 8%. Momentum gathered in 2006 will flow into the early part of 2007, and this will be supported by a buoyant economy, stable interest rates and a continuing shortage of housing supply.

We can therefore expect to see a few months of double-digit annual house price inflation in the first half of the year.

However, increasingly poor affordability, the impact of higher mortgage rates and the likelihood that fewer parents will be willing or able to help their children out will cause the rate of house price growth to move back into single digits in the latter part of the year”