1.6% July rise in the "Real" Nationwide House Price Index takes 2009 increase to date up to 3.8%

Posted on 30 July 2009 by Ray Boulger

1 Comment

Nationwide’s “Real” House price Index recorded an increase of 1.6% in July, the same as June, compared to the seasonally adjusted figure of + 1.3% for July and an upwards revised + 1.0% for June. This is the sixth consecutive month that the widely reported seasonally adjusted figures have resulted in lower figures than the real ones, with the cumulative difference between these two figures in the first 7 months of this year now at 2.5% (see table below). This trend is likely to reverse for the rest of the year and as the two figures must agree on an annual basis it is now difficult to see a scenario where either Nationwide index records a fall on the year.

It would be surprising to see price increases every month for the rest of the year, but the real price index has now increased for five consecutive months since the market bottomed out in February and this is very strong evidence that the market has turned. Last year the seasonal adjustment in August resulted in an increase of 0.9% from the real price index (which actually resulted in the seasonally adjusted fall being less than the real fall) and so unless real prices fall by around 1% in August the widely reported seasonally adjusted index will show another increase.

I continue to believe that in a market where the seasons have become a less important influence on house prices than other factors, such as the availability and cost of mortgage finance, it has not only become increasingly difficult to assess what impact the time of year has on prices but also less relevant. Hence my view that it makes more sense to focus on the real figures. It would be helpful if any business producing house price information compared the month on month figure for the current year with the figures for the same two months the previous year at the top of the press release, along with the other statistical comparisons. It would then be very easy for those reading it to make their own judgment of the importance or otherwise of seasonal factors.

It is interesting to note the change of tone in Nationwide’s press release this month, with significantly less focus on reasons why the recent price rises might not be sustained and a recognition that “there is now a reasonable chance that prices could end the year slightly higher than where they started.” A comparison of a headline last month “Price recovery still faces significant risks,” with this month’s comparable headline “House prices resilient despite recessionary economic background,” indicates very well Nationwide’s change of mood. Likewise the tone of the comment from arch bears, Capital Economics, is more subdued.

The following table is self explanatory and I now think that house prices will increase by at least 5% in 2009, rather than falling 5% as I predicted at the end of last year. The recovery will be very sensitive to interest rate changes but as our economy is in such a mess I expect Bank Rate will remain low for 2-3 years, albeit not as low as 0.5% for that whole period. Mortgage availability will probably increase as rates rise and this will mitigate the impact of a higher Bank Rate but the timing and speed of Bank Rate increases will be a critical factor in the future path of house prices.

Category: Bank of England, House and home, Interest rates, Mortgages, Property market

• Save to del.icio.us
• Digg this story