31st May 2007
Reuters – House price inflation at five-month high
LONDON (Reuters) - House prices rose 0.5 percent in May, taking the annual growth rate to 10.3 percent, its highest level in five months, the Nationwide building society said on Thursday.
While the monthly rate was slower than April's 0.9 percent gain seen, the firming in the annual rate from 10.2 percent suggests four interest rate rises since August have so far failed to have any significant impact on house price inflation.
The latest increase took the price of an average house to 181,584 pounds in May, some 17,000 pounds higher than at the same time last year, and follows the Bank of England raising interest rates to 5.5 percent at the start of the month.
The data had little impact on financial markets, which are pricing in a strong chance that interest rates will rise to 6 percent by the end of this year.
"Today's report gives no indication the BoE's recent tightening campaign is beginning to weigh on the market," said Richard McGuire, strategist at RBC. "We suspect the Bank will continue to raise rates until it sees some form of discernible weakness in the housing sector."
But Nationwide said there were now signs the market was slowing.
"The last rise in rates and the financial market expectation of at least one more will dampen demand and buyers' expectations of further house price growth during the rest of 2007 and contribute to the slowing of house price growth," said Fionnuala Earley, Nationwide's chief economist.
"Higher interest rates clearly present risks to the housing market, but providing the economy, and particularly the labour market, remain in good shape, we should still expect to see a measured cooling." Nevertheless, she warned that buyers should be wary of stretching themselves to get on the housing ladder.