UK House Price Rise Continues in June - More Agony Prolonging Goodness?

The Nationwide has released the figures for its house price index for June. The main points were as follows:

• A month on month rise of 0.9% - continuing the trend of monthly rises
• Tri-monthly and more accurate short-term measure shows positive growth of 0.9%, the first positive tri-monthly growth since December 2007.
• Annual decline hit single digits for first time since July 2008, with the annual rate of decline now at -9.3%

Nationwide admits that prices should still be falling given the low transaction levels we are currently seeing, 55% below the long-term average, and 33% below the lowest point during the last correction in the early nineties. Martin Gahbauer, Nationwide's chief economist said:

"House prices have now risen in three of the last four months, suggesting that the improvement that began to show up in March represents more than just statistical noise. What is unusual about the recent trend reversal, however, is that it has taken place against a background of transactions activity that is still very low by historical standards.

"Although it has risen from the all-time record low reached in November 2008, the industry-wide number of mortgages approved for house purchases is still 55% below its long-run average and 33% below the trough reached in the 1990s downturn. Normally, such a low level of house purchases would be associated with falling house prices."

The truth is that low-supply continues to put a false-floor below prices. As this positive data continues to roll in, one must wonder how long it will be before people start putting their houses back on the market, which will up supply and remove the false floor.

In fact the price rises are actually bad news. As admitted by Nationwide, transactions are low. Transactions are low because homes are still not affordable to first time buyers. Prices need to fall by at least another 15% before they will be sufficiently affordable to first time buyers, so the current situation is only prolonging the downturn. And I will also say, the higher prices rise now, the faster they will fall in the second bite.

Nationwide says that is the current trend of rising prices continues in the second half of the year, then 2009 will register as only a small annual fall in house prices, not the major fall analysts had forecast at the beginning of the year. I will say, that if that happens, then 2010 will be another 2008.

However, it is still possible that this is a seasonal bounce. It all may well change in the winter. Joseph Harwood, director of Gloucester property investment firm Rock Star Investment, thinks that the Nationwide index is barely useful, because it doesn't represent the true market; where many people are still asking far too much for their property.

"Positive news like this, that is not on a stable footing of raised transactions is only going to make things worse and prolong the agony. Sellers still aren't realistic on the whole, and this is only going to make this problem worse," he said.

"On the upside, if this makes people sell up it will reduce stocks on the rental market, thus putting upward pressure on rental rates, which is good news for our investors," he added.