The Guardian: UK house prices rose for third month in November as interest rate expectations shift

Following Nationwide’s latest house price index, released this morning, they say:

• Nationwide’s measure of house prices in November delivered a third successive month-on-month increase. The rise of 0.2% was modest, but prices are proving resilient in the face of an increase in mortgage rates and a sluggish economy. The EY ITEM Club thinks the odds of a serious correction in prices are increasingly remote.
  

• Average rates on new mortgages are at a 15-year high and activity in the housing market, as measured by mortgage lending and approvals, is weak. And the Monetary Policy Committee’s (MPC) ‘high for longer’ message on interest rates means markets have reined back expectations of how much borrowing costs will be cut next year.
  

• But the MPC’s decision to pause rate rises in its last few meetings has contributed to a decline in quoted mortgage rates. The EY ITEM Club thinks inflation will recede quicker than the committee expects, opening up the prospect of rate cuts late next spring. Households’ finances remain in good shape and a rebound in mortgage approvals in the latest data suggests the housing market’s weakest point may have passed.
  

• None of this suggests a rebound in house prices anytime soon. But a period of drift, rather than serious decline, looks in prospect, easing at least one previously expected headwind to the economy.

After a bumpy year for the housing market, Nationwide has just reported that UK house prices rose 0.2% month-on-month in November, on a seasonally-adjusted basis. That’s the third monthly rise in a row – surprising City economists who expected a 0.4% monthly fall.

On an annual basis, prices were 2% lower than a year ago – a weak result, but the strongest reading since February.

According to Nationwide, the average price of a house sold in November was £258,557, which (you may note) is actually slightly lower than October’s £259,423 – but that’s before seasonal adjustments.

This data only covers lenders who take out a mortgage, rather than cash buyers, but it’s still a good test of the housing market.

The housing market is benefitting from the drop in UK inflation, which is leading to expectations that UK interest rates will be lower than previously feared. Several mortgage lenders have cut their rates in recent weeks.

Robert Gardner, Nationwide’s chief economist, says:

“There has been a significant change in market expectations for the future path of Bank Rate in recent months which, if sustained, could provide much needed support for housing market activity.

“In mid-August, investors had expected the Bank of England to raise rates to a peak of around 6% and lower them only modestly (to c.4%) over the next five years. By the end of November, this had shifted to a view that rates have now peaked (at 5.25%) and that they will be lowered to around 3.5% in the years ahead.

But even so, the housing market has clearly cooled this year. Data yesterday showed that the number of home sales in October was 21% lower than the same month last year.