UK House Price rises - Nationwide

House prices edge up further in November
• House prices rose by 0.5% in November, the same rate as in October
• Year-on-year house price inflation increased from 2.0% to 2.7%
• Labour market has so far held up better than expected

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 (chart 1) and record low growth in average earnings (chart 2). 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. If output is too slow to recover, then firms may find it necessary to reduce their payrolls further in order to improve productivity and profitability. Another reason to remain cautious about the future outlook for employment is that the public sector has not yet experienced any significant job losses, but presumably will begin to do so when fiscal policy is tightened from next year onwards.

“Despite continued uncertainties about the future, the better than expected performance of the labour market has probably contributed to the surprise
rebound in house prices this year. Even though workers who have been forced
from full-time employment into part-time work will have experienced a reduction in
income, the impact has been less severe than it would have been if they had lost
their jobs completely. Together with the fact that mortgage rates have fallen
sharply as a result of base rate cuts, this has meant that far fewer borrowers have
fallen into arrears than would normally be the case in such a deep recession. In fact, the percentage of borrowers in arrears across the mortgage industry has even edged down slightly in the most recent quarterly figures (chart 3). As such, the
downward pressure on house prices from distressed sales has so far been ignificantly lower than expected.”