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Economy in Brief

UK House Prices Still Strong in September
by Carol Stone October 4, 2006

Unlike in the US, the property market in the UK is still strong. Home prices published today by the Halifax Royal Bank of Scotland (HBOS) showed a 1.0% monthly increase in September, seasonally adjusted. August was revised upward to 1.3% from 1.0% reported initially. September's price stood 8.2% above a year ago; the growth rate in the three-month moving average most frequently cited by the bank was 8.0%. This is less than in the prior four months, but firmer than what prevailed across 2005.

For comparison, we can look at the price in US dollars; it was $342,000. A slight firming in the dollar diminished September's sterling price gain in to 0.4% in the US currency, but that followed a 4.0% surge in August when the dollar had fallen 2.6% again the pound.

The firmness in UK house prices is presently accompanying firm demand for houses in the UK, suggested by the positive readings in the RICS housing market survey. Data on actual counts of home sales transactions lag a couple of months. But this survey by Chartered Surveyors gives the balance of respondents showing more "newly agreed sales" over fewer sales at +21% in August, the second highest since early 2004.

Analysts were impressed with the strength in home prices, even as interest rates are also moving up. In early August, the Bank of England raised its base rate 25 basis points to 4.75%. This appears not yet fully reflected in available data on mortgage rates, which show the "standard variable rate" inching up just 2 basis points in August to 6.50% from 6.48% in July. The "base-rate tracker" mortgage rate rose in August to 5.30% from 5.16% in July. The higher house prices suggest that rising mortgage rates didn't discourage buyers in September -- or perhaps they stimulated buyers in the reverse way: "let's get our house and our mortgage now before rates go up more", they may have thought, which circumstance would point to a slowdown in coming months.

UK House Prices Sept 2006 Aug 2006 July 2006 Year Ago 2005 2004 2003
Average House Price (SA*, £000) 181.2 179.5 177.2 167.5 165.3 157.0 132.2
  % Chg 1.0 1.3 0.3 8.2 5.3 18.8 19.0
  US $ (000) 341.5 340.0 326.9 302.9 300.7 287.6 216.4
    % Chg 0.4 4.0 0.4 12.8 4.6 32.9 29.2
RICS Newly Agreed Sales** -- +21% +12% +12% +2% -9% -2%
Mortgage Rate*** -- 6.50% 6.48% 6.71% 6.63% 6.25% 5.61%
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