British House Prices Rise with Originations

British home builder Nationwide saw its third month of home price increases in July, according to a house price index released Thursday. House prices gained 1.3% on a seasonally adjusted basis in July. The three-month-on-three-month rate of change gained 1% in June to 2.6% in July — the highest level since February 2007. UK house prices are still 6.2% lower than 12 months ago, Nationwide said, but this represents a significant improvement from the 9.3% year-on-year decline seen in June. “House prices have been remarkably resilient so far this year, despite a recessionary economic background with sharply rising unemployment,” said Martin Gahbauer, Nationwide’s chief economist. “Although this outcome has come as a surprise, it is not inconsistent with other economic indicators and asset prices, which have also bounced back somewhat after very severe declines around the turn of the year. During turbulent economic times, it is not unusual for economic indicators and asset prices to overshoot in one direction and then experience a correction in the other.” “The improvement in housing market conditions, however,” Gahbauer added, “does not mean that the positive price trends of recent months can be extrapolated into the future in a straight line. If prices continue to increase at the rate of the last three months, they would soon rise to levels that would be noticeably out of line with earnings, rents and other fundamental determinants of housing valuations.” As prices gain — on an apparently unsustainable level, according to Gahbauer’s comments — home sales in the UK are also on the rise, according to purchase origination data. The Bank of England showed mortgage originations were up in June to 47,584, the highest level since April 2008. The volume of purchase loans approved in the month remain historically low, however, with 36% fewer originations in the first half of 2009 than the same period of 2008. “Activity is certainly more positive than at the start of the year,” said Council of Mortgage Lenders’ economist Paul Samter. “This is consistent with the improvement in housing market sentiment, but the outlook is still sluggish, as capacity constraints on the lending industry and continuing deterioration in the labour market will act as a brake on the pick up.” “Overall,” Samter added, “these numbers are consistent with our outlook for a gradual improvement from historic lows following the financial system turmoil last year, but for any recovery to be slow and drawn out.” Write to Diana Golobay.

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