Residential property prices in the UK rose by 5.9% in 2009 as the real estate market bounced back from last year’s double digit declines, according to the latest figures to be published.
The average cost of a UK home rose by another 0.4% in December to £162,103, marking the eighth straight month of price increases, according to the Nationwide Building Society.
The Nationwide’s chief economist Martin Gahbauer said a year ago such a rise was unthinkable and he put it down to pent up demand in the market place and cash rich buyers driving the market forward.
The data shows that, unless there is another sharp move lower, UK house prices have recovered more quickly and fallen less far than many analysts predicted.
The rate of price increases is slowing though. The three monthly rate of change showed price growth easing with property prices rising 2.1% in the three months through to December, down from 2.8% in the three months through to November.
Martin Gahbauer, Nationwide’s chief economist, said the increase in property prices this year surprised most commentators. ‘Few could have foreseen this development at the start of the year when the near term price trend was still pointing to a repeat of the double digit annual decline experienced in 2008. Although house prices are still 12.2% lower than their October 2007 cyclical peak, they have now rebounded by an impressive 8.9% since their February 2009 trough,’ he explained.
The picture though for 2010 is unclear, with a recent slowdown in price rises raising concerns over the sustainability of the market recovery. December’s 0.4% rise is significantly below the hikes of up to 1.4% recorded in the summer.
The past year was buoyed by pent-up demand, Gahbauer said, as cash buyers not restrained by the credit drought entered the market. Record low interest rates, a smaller than feared increase in unemployment together with recent stabilisation in the banking sector and signs of an economic recovery also acted as a boost.
However, the market is likely to be pretty flat in 2010 with an election ahead and although interest rates are expected to remain low there are uncertainties over the labour market outlook and the supply of cash rich buyers is expected to dwindle.
‘This year’s recovery has to some extent been driven by transitory factors and there are reasons to believe that it will lose momentum over the coming year. As a result 2010 will see no significant house price movements in either direction,’ said Gahbauer.
‘However, the experience of 2009 demonstrates how unpredictable the market is at the current juncture and that one should always be prepared for the UK housing market to surprise,’ he added.