Government Figures on UK House Prices for July Interesting in Places

Well, the government (Department for Communities and local Government) released its figures on UK house prices for July yesterday, and unsurprisingly they show price rises across the board, except for on the annual measure, for which the rate of decline continued to slow.

What was surprising however, was the fact that the DCLG index now has the rate of annual decline at slower than the Halifax, though it is still faster than that of Nationwide.

According to the DCLG index for July, UK house prices rose 1.4% on the month (Halifax 1.1%, Nationwide 1.3%).

The DCLG's tri-monthly measure turned positive for the first time, with a growth of 2.1% in the three months ending July, compared to a fall of 2.8% in the previous quarter. Both Halifax and Nationwide recorded tri-monthly growth in the three months ending July (see links above). The tri-monthly measure is widely recognised as the more accurate indicator of short term trends because it is less volatile.

Now, annual measurements: in July 2009 UK house prices were 8.3% lower than in July 2008 according to the DCLG, 12.1% lower according to the Halifax and 6.2% lower according to the Nationwide.

Of course the Nationwide and Halifax have now both released their figures for August, and both showed prices continuing to rise on the monthly and tri-monthly basis, and the annual rate of decline continuing to slow. Interestingly the Halifax figures still show the annual decline at faster than the DCLG, at 10.1%, though they show a £112 increase for 2009 so far. According to Nationwide house prices were down just over 2% on an annual basis in August.

Nationwide UK House Price Index for August Hardly Surprising: More Rises = Bad News for Housing Market

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.