House prices go up again, but fears grow that economy cannot sustain rise

The housing market rebound showed no sign of slowing in October, according to the latest figures, with prices rising by 1.2 per cent. Halifax said that the increase was the fourth consecutive rise by its measure. House prices are now 7.1 per cent higher than they were six months ago and 2.9 per cent higher than in December last year, the lender said. Prices in the three months to October were 2.9 per cent, or £4,667 higher than in the previous three months.

The surprise resurgence in house prices, to an average of £165,528, has brought the annual decrease to minus 4.7 per cent, compared with minus 17.7 per cent recorded in April, at the bottom of the market. The total fall from the market peak in August 2007 to the April trough was 23 per cent. Martin Ellis, Halifax’s housing economist, said: “Demand for houses has risen in recent months due to the very low level of interest rates, the decline in property prices since the summer of 2007 and a pick-up in consumer confidence on the back of better economic news. Higher demand has combined with a low level of properties for sale to result in rising prices.”

Halifax said that there were early signs that more people were beginning to put their homes on the market as conditions improved, a trend that economists have said could lead to a relapse in recent price rises. The ratio of house sales to the stock of unsold properties increased for the ninth successive month in September, indicating that homebuyers increasingly were turning towards property that has been on the market for longer in response to the lack of fresh stock.

Howard Archer, chief economist at Global Insight, said: “Personally, I’m sceptical that house prices can go on rising for much longer. That’s not to say that they will fall off a cliff — I just don’t think the economy is strong enough to sustain these increases. “A relapse in house prices will be even more likely if the recent firming trend leads to more properties coming on to the market, thereby moving the supply-demand balance away from vendors towards buyers.” Homebuilders pointed to the ongoing reluctance of lenders to offer mortgages as a key obstacle to a sustainable recovery.

The latest Bank of England figures showed that there were 56,215 mortgage approvals in September, up by 68 per cent on the previous year but 44 per cent lower than September 2007. Ian Baker, group managing director for housebuilding at Galliford Try Homes, said: “Greater availability of mortgage funding across the board is crucial and while housing starts are increasing and housebuilders are keen to build, the mortgage famine is a huge stumbling block in actually completing sales.” Estate agents are expecting a seasonal fall in transaction levels in the run-up to Christmas, but foresee improvements in the number of sales in the new year. Feeling the squeeze The Chartered Institute of Purchasing & Supply (CIPS) said yesterday that private residential housebuilding had increased for the second successive month, but it was the only sector of the construction industry to show a rise (Rebecca O’Connor writes). The index gave a reading of 46.2 per cent in October, down from 46.7 in September and the twentieth month of contraction in a row for construction companies. The decline came despite hopes that a rise in orders for public sector construction work would boost the outlook for building companies. Civil engineering construction fell at the fastest rate of decline for seven years, according to CIPS, while there was evidence of further redundancies at building companies. Costs also rose, amid higher fuel prices and an unfavourable exchange rate. David Noble, chief executive of CIPS, said: “Perhaps of most concern is the continued slashing of jobs at construction firms. The state of the sector means that many who have lost jobs will struggle to find something else before Christmas.”

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