Halifax says house prices have increased by 0.2%

Halifax’s latest house price index reveals that house prices have increased by 0.2% in July following successive declines in May and June.

The bank says this mixed pattern of monthly price rises and falls is a typical feature of a more stable housing market.

The corresponding monthly figures last year were weak and have, as expected, contributed to a pick-up in annual house price inflation in 2006.

Halifax says the strengthening UK economy and improved buyer confidence gave the housing market more momentum than it expected in the first half of 2006.

The bank has slightly increased its forecast for house price growth this year from 3% to 5%.

This forecast (5%) is below the long-term average of 8% but is in line with the reported increase in 2005.

Sound fundamentals, underpinned by a strengthening economy, high employment levels and low interest rates, will continue to support housing demand in the second half of 2006.

The annual rate of house price inflation, however, is expected to ease, partly because the corresponding figures last year were strong.

Pressure on householders’ finances from utility bill and council tax rises, and speculation of higher interest rates, are also likely to moderate demand, causing house price inflation to decline.

Activity has stabilised in recent months with the number of loans approved for house purchase down 2% in 2006 Q2 compared with Q1, on a seasonally adjusted basis, according to the latest Bank of England figures.

Martin Ellis, chief economist, says: “House prices increased by 0.2% in July following successive declines in May and June.

This mixed pattern of monthly price rises and falls is a typical feature of a more stable housing market.

Overall, house prices have increased by only 0.9% in the past four months compared with a 3.3% rise in the preceding four months.

“Sound fundamentals will continue to support a healthy housing market over the remainder of 2006.

Nonetheless, we expect the annual rate of house price inflation to ease, partly because the corresponding figures last year were strong.

“Increased pressure on householders’ finances and mounting speculation of interest rate rises are also likely to curb demand.”