UK house prices up 1.9% in January

House prices increased by 1.9% in January, according to the latest Halifax House Price Index. This rise reverses December's 1.6% fall. Prices in the three months to January compared to the previous three months - a better indicator of the underlying trend - were 5.1% lower.

It is always important not to place too much weight on any one month's figures. Historically, house prices have not moved in the same direction month after month even during a pronounced downturn. For example, prices fell for seven successive months in 1989 before increasing in three of the first ten months in 1990 even though the overall trend in prices was downwards.

House prices in January were 17.2% lower on an annual basis. Despite the monthly gain, the annual rate of change (measured by the average for the latest three months against the same period a year earlier) fell from -16.2% in December to -17.2%.

Signs of an increase in activity albeit at quite a low level. Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase increased by 15% in December. Nonetheless, approvals were still at quite a low level; 58% lower than in December 2007.

Lower interest rates are improving affordability. Mortgage payments have fallen from 31% of gross earnings for the average new borrower in the first half of 2008 to an estimated 21% in January. Housing affordability has also improved according to the house price to average earnings ratio, which decreased to an estimated 4.48 in December 2008 from a peak of 5.84 in July 2007; a fall of 23%. The long-term average is 4.0.

Commenting, Martin Ellis, housing economist, said: "There was a 1.9% increase in average UK house prices in January, offsetting December's 1.6% decline. Prices in the three months to January compared to the preceding three months, which provides a better indicator of the underlying trend, were 5.1% lower.

It is always important not to place too much weight on any one month's figures. Historically, house prices have not moved in the same direction month after month even during a pronounced downturn. For example, prices fell for seven successive months in 1989 but subsequently increased in three of the first ten months in 1990 even though the overall trend in prices was downwards.

There are some very early signs that market activity may be stabilising, albeit at quite a low level. Nonetheless, continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to mean that 2009 will be a difficult year for the housing market."