House prices increased by 1.2% in January
House prices rose by 1.2% in January and are up 8.6% year-on-year, according to figures from the Nationwide Building Society.
Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said: "House prices strengthened their upward momentum at the start of 2010, increasing by a seasonally adjusted 1.2% month-on-month in January. The 3 month on 3 month rate of change - usually a smoother indicator of the near term trend - dipped slightly from 2.3% in December to 2.1% in January, but this primarily reflects the smaller price increases recorded in November and December. At £163,481, the average price of a typical UK property cost 8.6% more than a year earlier in January, up from 5.9% in December. Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007.
A mixed bag of macroeconomic data for the housing market
"Over the course of the last month, there were several important pieces of economic news with relevance for the housing market. The news that the UK economy finally emerged from recession in the fourth quarter of 2009 was in many ways a mixed bag. Although it is clearly encouraging that economic activity is no longer falling, it remains a long way below the pre-recession level and is not yet growing convincingly. Although there may still be some upward revisions to the initial estimates of economic growth, 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. This is a reversal of the picture in 2007-2008, when the housing market deteriorated much more quickly and at an earlier point in time than the wider economy.
"Despite the economy's unconvincing exit from recession, the labour market figures have continued to see welcome improvement. Unemployment fell in November for the first time since February 2008 and December saw a second consecutive decline in the number of jobless benefit claimants. These improvements in the headline jobless figures, however, hide some of the other adjustments that have been taking place in the labour market, most notably with regard to average pay. Over the course of 2009, UK average earnings growth has fallen to the lowest levels on record, as many employers have opted to spread their cost reduction measures over a wider segment of the workforce by freezing or reducing pay.
"Much of the upside surprise in inflation can be attributed to the weakness of the pound and the rebound in fuel prices from their early 2009 lows. However, the fact that inflation has been persistently higher than expected means either that the inflationary impact of the weak exchange rate has been underestimated, or that the degree of spare capacity in the economy has been overstated. On the latter point, some survey evidence suggests that spare capacity is less than in the previous recession, which may mean that downward pressure on inflation may not actually be as strong as predicted. If this is the case, then higher interest rates may be required sooner than is widely assumed."