UK House Prices Still Rising Says Govt. But How Long Can it Continue?

According to government figures released by the Department for Communities and Local Government yesterday UK house prices continued to rise in November. This was to be expected given the results of the other indices of Halifax and Nationwide which are much further forward in time.

According to DCLG house prices were 0.6% higher in November this year than last year, and 1.7% higher than in October. The widely hailed more accurate tri-monthly measure saw growth accelerate from 2.6% in the three months ending August to 3.5% in the three months ending November.

Meanwhile, the debate over the sustainability of the house price rally continues. This week the Guardian's Bearish editor Patrick Collinson has rained on RICS parade by quoting Meryl Lynch economists' forecasts in response to RICS upbeat predictions.

Lynch economists said that the Bank of England stimulus has been among the most aggressive in the world and that we will feel it when they inevitably have to take their foot off the quantitative easing pedal. By feel it I mean see a downward spiral in prices across all asset classes, including property. They don't foresee a double dip, but they do foresee the UK's growth for this year being among the slowest of the developed world at just 1.5%.

The economic climate continues to improve in the UK: the British Retail consortium has stated that UK retail sales in December were higher than they have been for four years. Figures released by the Office of National Statistics today show a 0.3% month on month rise in the index of production, and a quarter on quarter increase of 0.3% in the index of manufacturing.

Even the labour market statistics have been peppered with some slightly positive data in the last two months; overall unemployment rate up, but more people in employment (don't ask me how it works). In the quarter ending October the number of people unemployed increased by 21,000, while the number of people in employment increased by 53,000. There was a 6.1% decrease in the number of people claiming Jobseekers between September and October, which is the first time that indicator has turned positive.

So, it does seem pretty clear that the UK economy is still heading for recovery. It seems likely that the stimulus will continue for as long as the government can, or until there is more significant improvements in the labour market, whichever comes first.

However, on house prices I am still in for a 6% contraction this year, before a prolonged stagnation -- I do see rental rates rising though. Click here to read my full forecast on UK house prices in 2010.

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