The Nationwide building society, one of the UK's largest mortgage lenders has released its August data on UK house prices -- strange that they released it before the end of the month, usually its a few days after but there we go.
The Nationwide figures for August are largely unsurprising; UK house prices are up 1.6% on the month -- the fourth consecutive monthly increase -- up 3.3% on a tri-monthly basis, and now down just 2.7% on an annual basis.
What is surprising as you may have already seen Richard McKay point out on the Zungalow blog or his comments on Write About Property, is that the Nationwide report put the rising prices down to low interest rates.
As Richard said, yes low interest rates will almost certainly have been partially responsible for the minor increases we have seen in transaction levels this year. But said increased transactions would not have been enough to trigger the price increases of the last few months, were it not for the drastically low supply levels we are currently seeing in the UK housing market.
On a historical basis, as far back as 1993, if transaction volumes are this low, house prices are falling. The fact that they are rising is actually bad news for the housing market's future and here's why:
A: Vendors are still predominantly unrealistic about what their home will sell for. House prices rising is stopping this from being rectified, and the correction will not end until the gap between what the majority of vendors are willing to sell for, and what buyers are willing to pay closes. In short prices rising now, when vendors are still unrealistic is simply perpetuating the crash.
B: Homes still aren't affordable to the average first time buyer. The long-term average is house prices under 4 times the average salary. They are currently between 5 and 7 depending on who you listen to. Major crashes like this in house prices usually cause prices to go well below the long-term average, and it is unlikely that this crash will be any different. So again, house prices rising while homes are not affordable is perpetuating the crisis, and making another correction necessary.
There was nothing surprising in that results. I have been reading at many blogs and news with same trends and we all knew that this was expected, then why we are talking much about it rather than taking steps to prevent such tough condition in future.
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