Page last updated at 10:51 GMT, Thursday, 30 July 2009 11:51 UK

Homes 'may rise in value in 2009'

Nationwide branch
A pool of potential buyers has been waiting to buy, Nationwide says

The UK's largest building society believes there is a "reasonable chance" that house prices could end the year higher than they started 2009.

Such an outcome was "unthinkable" a few months ago, the Nationwide's chief economist said.

The Nationwide's latest house price survey showed prices rose by 1.3% in July compared with the previous month.

The average UK home costs £158,871, with the annual rate of property value falls slowing sharply to 6.2%, it said.

The three-month on three-month comparison of property prices - considered a less volatile measure than the monthly data - rose from 1% in June to 2.6% in July.

This was the highest level seen since February 2007, when the housing market was booming.

'Buyers' pool'

Property values in July were 6.2% lower than the same month a year earlier, but this was a significant deceleration compared with the 9.3% annual house price fall seen in June.

It is unlikely the price increases can be sustained for long at the very strong rate observed over the last few months
Martin Gahbauer, Nationwide chief economist

"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.

This "correction" was a response to the sharp decline in activity in the housing market at the height of the banking crisis last autumn, he said.

Mr Gahbauer said there had been a pool of prospective buyers who had been "ready and able" to buy during the credit crunch but had been put off by the uncertainty in the economy.

When the worst of the crisis was over, or averted, these buyers came back to the housing market, encouraged by low interest rates.

The rise in demand and activity coincided with few properties being put up for sale, and so prices bounced upwards, he said.

Lasting rise?

The rise in prices would be stunted owing to the squeeze on earnings and rental income, and the rise in unemployment, he warned.

House price graphic

"It is unlikely the price increases can be sustained for long at the very strong rate observed over the last few months," he said.

A rise in mortgage approvals for house purchases, revealed by the Bank of England earlier in the week, signalled greater activity in the housing market in the coming months.

In the short-term, the supply of homes for sale was determined by issues such as consumer confidence and job security, but construction was key over the long-term, said Mr Gahbauer.

An estimated 100,000 homes are being built in 2009, a record low. This is far below the increase in the number of home-seekers, owing to migration and greater life expectancy.

"Over time, these shortages are detrimental to housing affordability and can contribute to future instability of prices," he said.

The Royal Institution of Chartered Surveyors (Rics) said that the recent support for house prices was mainly down to a lack of supply of properties.

"Whether they may be described as reluctant landlords or investors, many homeowners wanting to move are hanging on to their existing homes in the knowledge that servicing costs are low and can be covered by rental income, even in an environment in which yields are slipping," said Simon Rubinsohn, Rics chief economist.

On Monday, the government announced that hundreds of housing developments in England that had stalled during the recession were set to share in a £925m attempt to kick-start the industry.

About 270 projects could benefit from the cash, the government said, with a third of the funds to go to housing associations to build affordable homes.

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