House prices unchanged in January

House prices were unchanged in January, prices in the three months to January were 1.0% lower than in the previous quarter, according to the latest Halifax House Price Index.

Over the past year, the average price of a home in the UK has increased by £7,628 to £197,244.

UK economy continues to grow at a healthy pace

Gross domestic product (GDP) increased by 0.6% between 2007 Q3 and 2007 Q4, according to recently releases figures. (Source: ONS) This quarterly rise was in line with the UK economy's long-term rate of growth, but slightly below the 0.7% increase in 2007Q3. Growth for the whole of 2007 reached 3.1%, the fastest rate for three years. The UK economy has now grown for 62 consecutive quarters, extending the longest running period of unbroken growth on record. The UK is expected to deliver its 65th successive quarter of GDP growth during 2008. No other developed nation can match this performance.

Employment – a key driver of housing demand - continues to rise

There was a 175,000 increase in the number of people in employment during the three months to November compared with the previous quarter. Employment was 263,000 higher than a year earlier at a record 29.36 million. Unemployment also fell by 13,000 over the past quarter (Source: ONS). The continuing strength of the labour market should continue to support the housing market.

Lower interest rates to support the economy and the housing market

The Bank of England is likely to cut interest rates again over the coming months with a reduction probable this month. We do, however, expect the Bank to take a cautious approach to lowering rates because there are few signs that the economy is slowing any more rapidly than the MPC considers necessary to keep inflationary pressures in check over the medium term. We predict that the MPC will cut the Bank Rate at least twice in 2008. Lower interest rates should help to prevent the economy slowing too sharply, therefore supporting the housing market.

Signs of a possible stabilisation in housing market activity

The number of mortgage approvals to fund house purchase in the final three months of 2007 was 35% lower than during the same period a year earlier, indicating a significant fall in housing market activity (Source: Bank of England). The number of new buyer enquiries has also been in decline over the past year (Source: RICS). There has, however, been a slowing in the rate of decline of new buyer enquiries during the past three months, suggesting that the downturn in activity may be beginning to stabilise.

Commenting, Martin Ellis, chief economist, said: "We expect sound economic fundamentals and lower interest rates to support house prices. Nationally, we predict that house prices will be flat in 2008. The UK economy recorded its 62nd successive quarter of growth in 2007 Quarter 4, extending the longest running period of unbroken growth on record. The economy is expected to continue expanding during 2008, albeit at a slower pace than in the past two years. Sustained growth should support a strong labour market. The MPC is likely to cut the Bank Rate at least twice in 2008; further supporting both the economy and housing demand."