Housing recovery loses steam

30 June 2010

The housing market recovery showed further signs of running out of steam in June with property prices edging up by just 0.1% during the month.

This follows on from increases of 0.5% in May and 1.1% in April and brings the annual rate of house price inflation down to 8.7% from 10.5% two months ago, according to Nationwide's monthly house price index.

This had been the first double digit rise since June 2007 although the data in recent times has been less encouraging.

Earlier this week, the Bank of England said that mortgage approvals were only stable at a muted 49,815 in May. Meanwhile, Hometrack released a pretty soft survey for June and the Land Registry reported that house prices in England and Wales fell 0.2% month-on-month in May.

Economists have long been warning that the housing market recovery was on thin ice with high unemployment and muted wage growth taking their toll.

More properties have also been coming onto the market, moving the supply/demand balance in favour of buyers.

Howard Archer, chief UK and European economist at IHS Global Insight, says today's data "further fuels our belief that house prices will struggle to make significant gains over the coming months and may very well be only flat overall through the rest of the year".

Ed Stansfield, property economist at Capital Economics, adds: "Since the past year's house price gains lacked any solid economic foundation and as the market remains overvalued, we expect house prices to fall back in the second half of this year as confidence fades. They will then continue falling in 2011 as the impact of the fiscal policy tightening kicks in."

Many economists are now expecting interest rates to rise again by the end of the year with inflation remaining stubbornly high. Last month it stood at 3.4% - well above the Bank's 2% medium-term target.

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