Piggybank News

January 16, 2012

Nationwide report predicts stable house prices for 2012

The latest report from Nationwide, released in December 2011, indicates that UK house prices are continuing to buck the trend of recession.  Houses are now worth 1% more on average than they were at the start of 2011.  Whilst this may seem like a small amount compared to the increases seen between 1997 and 2006 it is remarkably positive news when seen against the background of financial crisis in the euro zone.

Nationwide Chief Economist Robert Gardner said: “The 1% rise in house prices recorded over the past 12 months could hardly be described as a strong performance,but against a backdrop of anaemic economic growth and a deteriorating labour market, UK house prices were surprisingly resilient in 2011.

“Resilience was less evident in other areas of housing market activity in 2011. For example, the number of mortgage approvals remained low, at just over half the long-term average.

“Although high rates of unemployment, falling real wages and the uncertain economic outlook kept many potential homebuyers on the sidelines, the supply side of the market was similarly squeezed. Thanks to continued low interest rates, the number of forced sales remained low. Together with a dearth of building activity in recent years, this prevented a glut of unsold homes from accumulating on the market. This meant that although demand and supply were
both weak, they remained relatively well matched, providing little impetus for prices to move strongly in either direction.

“2012 isn’t shaping up to be much better than 2011, for the UK economy or the housing market. There is no sign of an end to the euro zone crisis and, since the single currency area is the UK’s largest trade partner, this will continue to weigh on our export performance at a time when the UK is unusually reliant on international trade to drive its recovery.

“Deteriorating labour market conditions and elevated inflation are already holding back household spending, while austerity measures are restraining public expenditure. Against this backdrop the UK economy is likely to expand by less than 1% again in 2012 – far below the 3% growth rates that were the norm before the onset of the financial crisis.

“With the UK economy struggling to gain momentum, labour market conditions are likely to remain challenging in 2012, deterring buyers from entering the housing market. This may tip the demand/supply balance in favour of buyers.

“However, there are few indications that a flood of properties is about to hit the market, so tight supply conditions will continue to provide some support for prices.

“The outlook is very uncertain, and will depend crucially on how the wider UK economy performs. Nevertheless, as things stand, the housing market in 2012 looks likely to be characterised by low levels of activity once again, with prices moving sideways or modestly lower over the course of the year.”


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