Nationwide holds out hope of housing market resilience

By Sean O'Grady – 01 November 2007

Nationwide Building Society rep-orted a 1.1 per cent gain in property prices in October, pushing the annual rate of house price inflation to 9.7 per cent, up half a percentage point on September's showing. This contrasts with recent data from Hometrack, which showed prices falling, while most other sources, including the Halifax house price index, show a softening market.

"There certainly is some resilience, said Fionnuala Earley, chief economist at Nationwide. "But the underlying trend is downwards and we expect the market to slow into 2008."

The Gfk survey of consumer confidence also painted a relatively muted picture of sentiment. Confidence about major purchases is at its lowest level since Dec-ember 1995. Economists warned, however, that this barometer does not always relate strongly to consumer spending.

The Bank of England's Monetary Policy Committee, which will announce the next move in interest rates next Thursday, monitors a three-month rolling average of the Halifax and Nat-ionwide indices in setting policy. On this measure, the latest Nationwide figures suggest an acceleration in house price inflation from 6.9 to 8 per cent, but within the range it has been moving in since the spring. The equivalent Halifax figure was down in September, to 4.5 per cent per annum.

Malcolm Barr, of JP Morgan, said: "While we believe concerns on the medium-term outlook for house prices are justified, the data from the lenders are not anywhere close to suggesting we have already transitioned into a phase of outright declines. As demand has slowed (but not collapsed) of late, so has the flow of property coming on to the market."

The Nationwide said a housing market slowdown may have "strong implications" for the buy-to-let sector. Ms Earley said: "Rents would have to rise very strongly relative to house prices to make short-term buy-to-let investments profitable at current interest rates."

Overall, the data – and comments from MPC members Kate Barker and David Blanchflower – would indicate rates remaining at 5.75 per cent next week.

Howard Archer, of Global Insight, said: "As long as the economy does not slow sharply, we believe that the downside for house prices is likely to be limited by a lack of supply, supportive demographics, high employment and the fact that few vendors are currently having to sell for 'distressed' reasons."