UK House Price Rise in July Largely Irrelevant

The Nationwide index has revealed that UK house prices rose by 1.3% in July. This brought the three monthly measure to a rise of 2.6% up from a 1% increase in the three months ending June -- the biggest three monthly rise since the three months ending June 2007. This also meant that house prices are now just 6.2% lower than they were a year ago.

This has all led to Nationwide predicting that house prices will show a rise on an annual basis by the end of this year, even if prices fail to rise any further on a monthly basis, because of the sharp falls experienced in the second half of last year.

The authors of the report seem to have been very careful in their choice of words and phrases, so as to avoid directly saying that the upward pressure on prices is caused by a shortage of supply.

The biggest surprise though was the report saying that the severe fall in house prices last year was an overshoot and that this current upward swing is the correction of that.

Sure, the drastic liquidity reduction as banks collapsed around the world triggered the current correction, but it was only a catalyst for the reaction that had been building for some time as first time buyers were gradually priced out of the market. Thus the correction won't actually end until homes are more affordable, or the economy recovers whichever comes first.

So the fact that prices are currently going up is largely irrelevant in the grand scheme of things. In the volatile world we currently live anything could happen to prices from now forward. Prices might even continue growing for some time, but if they do then mark my words, there will be another major correction before 2015.