House Prices Rise Through November But Outlook Depends on Labour

House prices have continued to increase through out November although the rate of increase has started to slow, which is most likely due to the seasonal slow down as attention focuses on Christmas.

The mortgage lender Nationwide indicates that while month on month growth was 0.5 per cent, the increase over three months has declined from 3.8 per cent in the third quarter to September, to 2.5 per cent in October and 2.8 per cent in the three months to November.

Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said:

“The monthly rate of house price inflation was unchanged in November at a seasonally adjusted 0.5%, leaving the average price of a typical property 2.7% higher than a year earlier. At £162,764, the average house price is at a similar level to where it was in early 2006. The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – dropped to 2.8% from 3.5% in October and 3.8% in September. This suggests that house prices are now rising at a more moderate pace than in the spring and summer months, when they experienced a very strong bounce from the early 2009 lows.

Labour market has held up better than expected but uncertainties remain

“The outlook for the housing market remains crucially dependent on labour market conditions, and here recent developments have been somewhat more encouraging than might have been expected. With the UK experiencing its longest and deepest recession since WWII, most economists expected unemployment to increase very sharply in 2009, perhaps breaching the psychologically important three million mark by the end of the year. While unemployment has indeed increased noticeably, the rise has not been as rapid and pronounced as previously feared. Based on the latest labour market figures from September, it now looks unlikely that the jobless total will reach three million before the year is up.

“Part of the explanation for why unemployment has not risen to the levels implied by the recession’s depth is that in many cases employers have opted to reduce working hours and pay rather than make employees redundant. This is reflected in rising part-time employment at the expense of full-time employment and record low growth in average earnings. The strategy of cutting hours and pay rather than headcount probably reflects a fear among many employers that they could find themselves short of labour when the economy recovers, thus leaving them less competitive in the longer
term. Whether this strategy is sustainable will depend on how quickly the economy recovers.

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