House prices up 8.6% year-on-year

In the first of the 2010 house price surveys, Nationwide has announced that the average price of a home rose by 1.2% in January, compared with a month earlier.

The ninth consecutive monthly increase puts the average value of a UK home at £163,481, showing a year-on-year gain of 8.6% (up from 5.9% in December 2009).

Furthermore, the building society’s chief economist, Martin Gahbauer, believes February could usher in an annual increase in double digits, for the first time since May 2007.

Turning to the three-month on three-month measure, which is regarded as a more reliable indicator of the short-term trend, house prices rose by 2.1% in January, down slightly from 2.3% in December.

However, Nationwide points out that the dip primarily reflects smaller price increases recorded in November and December.

Commenting on the data, Mr Gahbauer reacts cautiously to the news that the UK economy has finally emerged from recession.

He explains: “This won’t change the fact that the rebound in the housing market – and particularly house prices – has gone some way beyond the recovery in the overall economy.”

He adds: “With pay inflation near zero or even negative, every additional increase in house prices worsens housing affordability, particularly since interest rates are very unlikely to fall any further.”

According to Mr Gahbauer: “All else being equal, this limits the upside potential for the current recovery in house prices.”

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