U.K. Halifax House Prices Gain for a Third Month

U.K. Halifax House Prices Gain for a Third Month (Update1)
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By Brian Swint

Oct. 6 (Bloomberg) -- U.K. house prices rose for a third month in September, spurred by increasing demand and a lack of properties for sale, a report by Halifax showed.

Home values climbed 1.6 percent to an average of 163,533 pounds ($262,000) after rising 0.8 percent in August, the division of Lloyds Banking Group Plc said in a statement today. The median of nine forecasts in a Bloomberg News survey was for a 0.6 percent increase. House prices fell 4.8 percent in September from a year earlier.

“The combination of increased demand and a low level of properties available for sale has pushed up house prices in recent months,” Martin Ellis, housing economist at Halifax, said in the statement. “The marked improvement in affordability due to the reduction in both property prices and interest rates since mid 2007 has been a key factor in stimulating higher demand.”

The report adds to signs Britain is recovering from recession after services expanded at the fastest pace in two years last month and consumer confidence rose. Bank of England policy makers are meeting this week to assess the 175-billion pound ($280 billion) program to bolster the economy by buying bonds with newly created money.

House prices rose 2.8 percent between July and September, the first quarterly increase for two years, Halifax said. The average home value has risen 5.9 percent since reaching a trough in April, taking prices to the levels of mid 2005. Prices slumped 23 percent from their peak in August 2007 through April this year.

Slowdown Seen

“There are some signs that the improvement in market conditions is encouraging more people to put their properties up for sale,” Ellis said. “This development could loosen market conditions by alleviating the current shortage of supply and curb the pace of house price growth evident in recent months.”

Policy makers say rising unemployment, persistent credit strains and the prospect of tax increases and spending cuts to rein in a record budget deficit mean the economy may take years to fully recover.

Factory production unexpectedly slumped in August to the lowest level since 1992, the statistics office said in a separate report today. Unemployment is at the highest since 1995, and Bank of England Governor Mervyn King said last month households will struggle to increase spending as joblessness keeps rising even after the economy starts growing.

Jobless Concern

The pound pared gains against the dollar after the manufacturing report to trade at $1.5949 as of 10:28 a.m. in London.

“Continuing increases in unemployment and low earnings growth are likely to constrain the rise in demand,” Ellis said.

Applications to build new homes in the U.K. rose 2.5 percent in the three months through August from the previous quarter, the National House Building Council said today. U.K. house prices gained in September, erasing the losses of the past year, Nationwide Building Society said Oct. 2.

The IMF says the U.K. economy will expand 0.9 percent in 2010 after previously forecasting growth of 0.2 percent. Consumer confidence jumped the most since 1995 last month, GfK NOP says, and the Bank of England reported last week that lenders expect mortgage supply to rise in the fourth quarter.

At their Sept. 10 decision, policy makers said rising asset prices could create a “virtuous upward spiral” for the economy. Chief Economist Spencer Dale said last month that he favored limiting the increase in the bank’s bond purchase plan to 175 billion pounds because of the risk spending more might stoke asset prices too much.

The benchmark interest rate stands at a record low 0.5 percent. The central bank makes its policy decision on Oct. 8.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
Last Updated: October 6, 2009 05:39 EDT