House prices ended 2009 5.9 per cent higher than a year earlier, according to the Nationwide index released on Thursday, in a sign of the surprising strength of the housing market.
Prices were up by 0.4 per cent in December, having risen in all but one month since March. However, the pace of increase has moderated slightly, with prices up by 2.1 per cent in the final quarter of this year, compared to a 3.8 per cent rise in the third quarter.
Prices are now 8.9 per cent above their February low, but still 12.2 per cent lower than at the peak in October 2007.
The persistent rise in prices this year has surprised most commentators, who widely expected 2009 to be a year of further falls in house prices.
Nationwide pointed to pent-up demand that had built up by the beginning of 2009 after transactions had fallen by about 65 per cent from their peak over the course of the financial crisis. A rise in purchases by cash-rich buyers at a time when fewer homeowners were putting their properties on the market, and low interest rates helping to prevent distressed sales, also pushed up prices.
“This restriction in supply meant that even a relatively modest pick-up in demand was able to put upward pressure on house prices,” said Martin Gahbauer, economist at Nationwide.
He said that he expected low interest rates to continue supporting prices for some time but that other factors might point to renewed weakness. Those included still restricted access to mortgages, the risk that the trickle of buyers with enough cash to put down the big deposits that banks currently demand will dry up, and that unemployment remains persistent even during the recovery.
“It seems likely that 2010 will see no significant house price movements in either direction,” said Mr Gahbauer.
House prices were also supported during the year by sharp price rises in the southeast and in London in particular. London prices are up by 7 per cent compared to a year ago, making it the best performing region. Areas just outside London and the Southeast also had a good year, with prices rising 6.4 per cent and 5.5 per cent respectively. The north was the only region to suffer a further year of price falls, with a 2 per cent decline over the year.
In the fourth quarter London prices were up 3.4 per cent, but only 0.4 per cent in the north.
Nationwide’s figures also reveal that house prices have risen sharply over the last decade, despite the recent recession. Adjusting for retail price inflation over the period, prices rose by 68 per cent in the noughties, the strongest increase on record, and compared to a 14 per cent drop during the 1990s.
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