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House price growth stabilising

Recent figures from the Nationwide have provide added evidence that annual house price growth may be

stabilising to the pace of the earnings growth, which has generally been around 4%.

Average house prices across the UK increased by 0.3% in August, but the annual pace of house price growth

edged down to 3.2%, which was the frailest for two years. 

According to Nationwide’s chief economist Robert Gardner “evidence cautions that this trend may not be

maintained unless construction activity accelerates”.

Gardner indicates the primary problem with the market is the low volume of new house building. Going on to

say that “UK house prices didn’t fall as far during the financial crisis, and even where they declined by a similar

magnitude, UK prices generally recovered their pre-crisis levels more quickly”.  

UK house prices are currently around 5% above their pre-crisis levels, while prices are still well below their pre-

crisis peaks in Ireland (where there are still down a remarkable 38%), Spain (still down 36%) and the

Netherlands (still down by 18%).

“There is a strong correlation between employment and house price growth since the financial crisis across the

major developed economies. House prices remain further below their pre-crisis peaks in countries where

employment is also well below pre-crisis levels” he says.

He adds: “With UK house building running well below the expected rate of household formation in recent years

and with demand for homes rising, a significant increase in construction activity is required if affordability is

not to become stretched in the years ahead.”

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