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House prices increased by 0.1% in May

Halifax house price index shows that house prices increased by 0.1% in May, the smallest monthly rise since January’s 0.2% fall.

Halifax says as expected, technical factors, specifically, the corresponding figures last year were weak – and recent momentum in the housing market have caused house price inflation to pick up in early 2006.

The annual rate, at 9.1%, is the highest for 14 months (March 2005).

The much stronger pattern of house price growth in the second half of 2005 compared with the first half should mean that annual house price growth moderates during 2006 H2.

There are signs that housing market activity may be beginning to level out. The number of mortgage approvals to fund house purchase fell in April for the second time in four months with the number of loans 11% below January’s peak of 119,000, according to the Bank of England.

The pressures on the household sector resulting from higher unemployment and significantly higher household bills, together with the current high level of house prices in relation to earnings, are likely to constrain housing demand and curb house price growth and activity over the remainder of 2006.

Separate Halifax research published today shows that there are now an estimated 66,600 properties in Britain valued at 1m and more compared with only 3,400 in 1995 a twenty-fold increase.

Sales at 1m and above outside London and the South East have risen 36-fold over the past decade.

The Halifax House Price Index is the UK’s longest running monthly house price series with data covering the whole country going back to January 1983.

The Index is typically based on around 15,000 house purchases per month, and covers the whole calendar month.

From this data, a “standardised” house price is calculated and property price movements on a like-for-like basis (including seasonal adjustments) are analysed over time. Properties over 1m are included and the index is seasonally adjusted with the seasonal factors updated monthly.

Martin Ellis, chief economist, says: “House prices increased by 0.1% in May, the smallest monthly rise since January’s 0.2% fall.

There are signs that housing market activity may be beginning to level out.

The pressures on the household sector resulting from higher unemployment and significantly higher household bills, together with the current high level of house prices in relation to earnings, are likely to constrain housing demand and curb house price growth and activity over the remainder of 2006.”

The number of mortgage approvals to fund house purchase fell by 7% in April, according to the latest Bank of England figures.

This was the second fall in four months with the number of loans, at 106,000, on a seasonally adjusted basis, 11% below January’s peak of 119,000.

The latest RICS survey reported little change in newly agreed sales in April, ending a run of six successive monthly increases.

Whilst buyer enquiries continued to rise, the pace of increase in April was the slowest since June 2005.

A combination of factors is expected to cause activity and house price inflation to ease over the remainder of 2006.

Labour market conditions have softened recently despite the upturn in overall economic activity. The number of people unemployed in the three months to March 2006 was 44,000 higher than in the preceding three months and up 177,000 compared with a year earlier.

Substantial increases in utility bills and above inflation council tax rises are also putting pressure on householders’ finances.

The pressures on the household sector resulting from higher unemployment and significantly higher household bills have contributed to a slowdown in consumer spending growth.

Household expenditure increased by only 0.2% in 2006 Quarter 1, according to the ONS, indicating a sharp slowdown compared with the second half of 2005.

These pressures, together with the current high level of house prices in relation to earnings, are likely to constrain housing demand and curb house price growth and activity.

Sound fundamentals – a strengthening economy, high levels of employment and low interest rates will, however, continue to support the housing market over the remainder of 2006, ensuring that the market remains in sound health.

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