House price inflation fell to its lowest level for more than nine years in September, according to the Financial Times house price index, the most reliable guide to the prices paid in the property market.
While prices recovered by 0.1 per cent in the month, the annual rate of inflation fell from 3.9 per cent in August to 3.2 per cent in September. House price inflation peaked at 15.2 per cent in August 2004.
The figures will be received with some satisfaction in official circles as they suggest that the market might be stabilising at current levels. House prices have been stagnant throughout 2005, while housing market activity has picked-up strongly in recent months.
But there will be continued concern that as house price inflation on all the main indicators heads towards zero, the current stability in the market will not last. Nervousness is likely to increase as property investors realise they can no longer rely on the prospect of capital gains to offset the reality of low rental yields.
Acadametrics, the consultancy that compiles the FT price index, said: “We expect low housing activity and stagnant prices to continue over the next 6 to 12 months across most regions”.
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Their argument is that house price inflation in the regions where it has been strongest is converging on the weaker regions where prices have hardly risen in the past year.
Gary Styles, chief economist of Acadametrics, said: “The differences in regional performance remain narrow with Wales, the strongest growing region, experiencing annual house price inflation of 6 per cent and the weakest region, the South West, seeing no overall house price growth in the last 12 months”.
The average price paid for a property in England and Wales in September was £192,804, only a touch higher than the £192,056 that sellers achieved at the start of the year in January.
All measures of house prices have shown a sharp decline in the annual rate of house price inflation this year.
Recently, there has been some divergence between the monthly indicators, with Nationwide, the building society, showing a 0.2 per cent monthly fall in prices in September, while Halifax, the lender, calculated that prices rose by 1.2 per cent.
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Since the methods used by both lenders to calculate house prices are extremely similar, the differences probably arise from the relatively small sample of housing transactions that any one lender uses.
The FT house price index does not suffer from the same sampling problems as it is based on all property transactions in England and Wales.
But the need to use statistical models to give timely results does lead to revisions of past data. This month, the estimate of August’s average property price in England and Wales was revised up from £190,833 to £192,581 as details of more transactions in the market became available.
Since June, the FT house price figures have included an adjustment for the types of property sold as well as a seasonal adjustment. Recently, a greater than usual proportion of properties in cheap areas has been selling, so a simple average of price changes would understate house price inflation. Without the adjustment, the index shows average prices had only risen by 1.9 per cent in the 12 months to September.
