House prices up in January in defiance ofweak economic growth

Martin Gahbauer, Chief Economist at Nationwide, said, “House prices strengthened their upward momentum at the start of 2010, increasing by a seasonally adjusted 1.2% month-on-month in January. The 3 month on 3 month rate of change – usually a smoother indicator of the near term trend – dipped slightly from 2.3% in December to 2.1% in January, but this primarily reflects the smaller price increases recorded in November and December. At £163,481, the average price of a typical UK property cost 8.6% more than a year earlier in January, up from 5.9% in December. Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007.”

Mr Gahbauer added that the news that Britain had emerged from the recession at the end of last year was a “mixed bag” for the housing market as the economy was still not “growing convincingly”. Despite this he said that the housing market had recovered at a greater speed than the overall economy just as in 2007-2008 it declined more quickly.

Despite falling unemployment, Nationwide that noted falling wages were worsening housing affordability, especially as interest rates are unlikely to get any lower. However low interest rates have also allowed those in work to continue to service their mortgages more comfortably, meaning that fewer people have been forced to sell their homes, which would increase demand.