Property market confusion

HOUSE prices rose 0.8% in January, according to the Halifax, the UK's largest mortgage lender. But the annual rate of increase slowed to its lowest level since December 2001, due to a weaker market last year.

The post-Christmas pick-up followed a 1.4% gain in December and left house prices up 13.7% in the three months to January, the weakest in more than three years and a further slowdown from 15.1% in the previous period.

'The second successive monthly rise in house prices in January suggests that the market is undergoing a measured slowdown,' said Martin Ellis, Halifax chief economist, 'but we shouldn't get carried away about this. It just gives us comfort that the market is not going into a tailspin.'

However, the recovery conflicts with other recent property reports. Estate agents, known for their bullish views on the market, say average prices have been falling since the summer.

A study by property research firm Hometrack said prices were down 0.4% in January and have been falling for six months. The firm, which bases its information on feedback from estate agents, says values are now 3% lower than six months ago.

The National Association of Estate Agents say prices have fallen for seven months in a row, with values down 1.2% in December. And Rightmove, a website owned by several firms of agents, says prices slipped 0.1% in January. Only rival lender Nationwide reflected a recent rise. It indicated a 0.4% increase for January.

The rise also raised eyebrows in the City. Simon Rubinsohn, chief economist at broker Gerrard, called it 'surprisingly strong'. 'Rightmove tells a rather different story - their survey shows prices falling in five out of the last six months,' he said. 'But they capture 'ask' prices at the very beginning of the house purchase process. This suggests that property is being put on the market at more 'realistic' levels but that actual 'sale' prices are holding up.'

Halifax's Ellis admitted the figures can be a 'bit bumpy' around the turn of the year due to low turnover - and that also their data, which is based on mortgage approvals, is likely to trail more recent feedback from estate agents.

The Halifax figures, which are seasonally-adjusted to smooth out blips in demand, showed that the average price of a home was only 1.4% higher than six months ago at £163,748. This was mainly due to price falls in August, down 0.5%, October, 1.2%, and November, which saw a 0.2% slip. The annual rate of house price inflation eased to 13.7% down from 22.1% in July.

Halifax said 'affordability difficulties' facing first-time buyers and the rise in interest rates since late 2003 had curbed housing demand. It said the strength of the UK economy and labour market gave 'solid foundations' for the housing market to remain in 'good health'.

The UK base rate has increased from a low of 3.5% in November to 4.75%. Last year, City economists feared rates would rise to 5.5% in the short-term, knocking confidence in the property market. Confidence among buyers seems to be returning as those fears appear unfounded. Halifax expects rates to fall to 4.25% this year.