Nationwide has revealed that house prices have jumped 1.4% in November.
Although many have predicted a price cooling in 2007, it seems that there is significant momentum still in the market.
Fionnuala Earley, group economist at Nationwide, says: “House prices jumped by 1.4% in November as the housing market refused to cool. As a result, the annual rate of growth rose to 9.6%, up from 8.0% last month. This is the highest rate of annual house price growth since February 2005 and means that house prices are £15,046 higher than twelve months ago. This brings the price of a typical house up to £172,185.
“Looking forward, current housing market indicators are firm and do nothing to dent the prospect of further rises in house prices in the very short term. Some cooling seemed to be in prospect when the growth of buyer enquiries fell quite sharply in September, but this pause in demand was short-lived. At the same time, stocks of properties for sale are at a two-year low leaving buyers chasing relatively few properties. With instructions still falling, there is no immediate improvement in supply conditions in sight.
“Furthermore, the outlook for the UK economy remains firm. The MPC expects the economy to grow by around 3% next year and, more importantly, it has revised up its estimate of trend growth. While the Bank of England, as expected, raised rates to 5% in November, its analysis suggests a lower likelihood of a further increase in rates in the short term. While a rate rise cannot be ruled out, it seems less likely than it did a few weeks ago.
“We have also argued before that affordability must eventually bite which limits the prospects for rapid nominal house price gains to continue far into the future. However, the likelihood and size of any fall will depend on how overvalued the market already is. In June we estimated that there was a modest level of overvaluation, based on the view that much of the fast run-up in house prices over the past decade can be explained by fundamental economic drivers such as supply shortages, growth in incomes and lower interest rates, rather than a large speculative bubble.
“The labour market in particular is stable. With growing employment and steady growth of earnings, forced sales will be kept to a minimum. And with the UK’s slow housing supply response, demand in the market is likely to remain fairly firm for the time being.”