Residential property prices in the United Kingdom rebounded strongly in August after falling for two months in a row, indicating that the housing market remains stable despite continuing weakness in consumer sentiment and the grim economic outlook, results of survey revealed Friday.
The average price of a U.K. home increased a seasonally adjusted 1.3 percent sequentially, reversing declines of 0.8 percent and 0.5 percent recorded in July and June, data from the Nationwide Building Society showed.
The latest increase was the biggest since January 2010. Prices were forecast to rise only 0.1 percent.
"Given the difficult economic backdrop, the extent of the rebound in August is a little surprising," Nationwide Chief Economist Robert Gardner said.
"However, we should never read too much into one month's data, especially since monthly price changes have been impacted by a number of one-off factors this year."
On an annual basis, house prices dropped at a slower rate of 0.7 percent in August than 2.6 percent in July. Economists had forecast prices to ease 2.2 percent from a year ago.
The moderation in the annual pace of house price decline provides evidence that conditions remain fairly stable, Gardner said. The latest improvement was supported by further increases in employment in recent months. Also, interest rates on both fixed and variable rate mortgages have declined, adding to the improvement affordability, Nationwide said.
The share of mortgages taken up by first time buyers was 39 percent of the total in August, which was slightly higher than 37 percent seen in the pre-crisis period.
Nationwide said further asset purchases by the Bank of England should help keep down longer-term interest rates. The lender expects house prices to remain fairly stable over the next two years, while incomes to continue to rise gradually, which will also help to support affordability.
The latest survey by Hometrack showed that house prices in the U.K. are set to face further squeeze during the rest of the year, as supply continues to outstrip demand. Meanwhile, a survey by Rightmove revealed that house prices fell at the fastest pace ever seen for August as properties coming to the market continued to outnumber demand.
Market research agency GfK NOP today said that U.K.'s consumer confidence continued to remain low in August as a modest uplift from the Olympics was offset by the grim economic outlook.
Adding to the gloom, the British Chamber of Commerce in a report said it expects the economy to shrink 0.4 percent in 2012, and urged the government to take bold measures to boost growth. The latest outlook reverses the previous forecast for 0.1 percent growth.
In the second quarter, the British economy shrunk 0.7 percent sequentially, which was the steepest contraction in three years.
Yesterday, the Confederation of British Industry (CBI) slashed its GDP outlook to reflect weaker economic conditions. The CBI sees 0.3 percent contraction this year, below its previous forecast of 0.6 percent growth.
by RTT Staff Writer
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