UK house prices rise in December

House prices increased by 1.3% in December following three successive monthly falls, according to the latest Halifax House Price Index.

Prices in Quarter 4 were marginally lower than in Quarter 3, down -0.8%. House prices in December were 5.2% higher than a year earlier with the average price of a home in the UK increasing by £11,759 over the year to £197,039.

The annual increase of 5.2% made 2007 only the second year since 2001 when prices have risen by less than the long-term average of 8%.

A mixed pattern of monthly price rises and falls – as seen over the past few months – typically characterises a subdued housing market. For example, there were six monthly falls and six monthly increases between July 2004 and June 2005 as the market slowed in response to a series of interest rate rises during 2004. There was a similar pattern in 2000.

Halifax predict that house prices will be flat in 2008. A slower housing market must be taken in context, however. House prices have risen by 182% over the past ten years from an average price of £70,000 at the end of 1997 to £197,000 today.

Sound economic fundamentals will support house prices in 2008. The economy is in good health; employment levels are high. The UK economy is expected to deliver its 65th successive quarter of GDP growth during 2008, extending the longest running period of unbroken growth on record. No other developed nation can match this performance.

The Bank of England is expected to follow last month's interest rate cut with further reductions over the coming months in order to prevent anything more than a gradual economic slowdown. The MPC is likely to cut the Bank Rate at least twice in 2008. Lower interest rates will help to support the housing market.

Commenting, Martin Ellis, chief economist, said: "House prices increased by 1.3 per cent in December, reversing some of the declines recorded in the preceding three months. This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market.

Overall, the housing market continued to slow in the final quarter of 2007 with prices slightly lower than in the preceding quarter. Higher mortgage repayments in response to the series of five interest rate increases between August 2006 and July 2007 and falling real earnings have put pressure on households' income, resulting in a slowdown in both house price growth and activity in recent months.

Sound economic fundamentals and lower interest rates will support house prices in 2008. The UK economy is expected to deliver its 65th successive quarter of GDP growth during the year, extending the longest running period of unbroken growth on record. The MPC is likely to follow up last month's cut by reducing the Bank Rate at least twice in 2008. House prices are predicted to be flat during 2008."