House price rises "will reverse"

6 October 2009

House prices gained a further 1.6% in September but some economists warn recent gains will soon be reversed.

The latest Halifax house price index shows a 1.6% rise in values last month, bringing the average price of a property to £163,533. Although prices are still 7.4% down on an annual basis, they have risen by a total of 1.7% since the end of 2008.

Halifax says increased demand for property, coupled with a reduced number of homes for sale, has helped boost prices.

Martin Ellis, housing economist at Halifax, adds: “The marked improvement in affordability due to the reduction in both property prices and interest rates since mid-2007 has been a key factor in stimulating higher demand.”

However, the sustainability of such rises is in doubt. “Continuing increases in unemployment and low earnings growth are likely to constrain the rise in demand,” warns Ellis.

“There are also some signs that the improvement in market conditions is encouraging more people to put their properties up for sale - this development could curb the pace of house price growth evident in recent months."

Experts at Capital Economics are even more pessimistic about the outlook for house prices.

“We suspect that recent gains in house prices will be reversed in due course,” says Seema Shah, one of its property economists. “With unemployment set to rise further and the market still overvalued, in our view, the correction is far from over.”

The latest figures come less than a week after Nationwide reported house prices are now at the same level as September last year, after the fifth consecutive month of increasing values. The building society’s house price index notes a 0.9% rise last month, and a 1.4% rise in August.

Estate agents are urging homeowners who want to sell to put their homes on the market now before demand peters out.

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