House prices hit three year high

Are house prices recovering after credit crunch?

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House price rises have broken the double figure (percentage) barrier for the first time in almost three
years, suggesting that confidence in the market has returned.

A recent report from the Nationwide has said that the 10.5 per cent growth in average annual prices was the highest since June 2007 with property values growing by 1 per cent in April to an average of £167,802, bringing them to within 10 per cent of their peak in October 2007.

Nationwide attributed the strong rebound in the past year to low levels of stock on the market and relatively high demand, rather than to high levels of sales.

House prices likely to stabilise

It warned though, that the upward trend was likely to stabilise over the coming months as more sellers put their homes on the market.

Martin Gahbauer, chief economist at Nationwide, said: "Given the very strong performance of house prices from May 2009 onwards it will take monthly increases in excess of 1 per cent for the annual rate of inflation to be maintained in double digits going forward."

The level of the monthly rise, based on seasonally adjusted figures, was partly due to April 2009 being one of the weakest months of last year, Nationwide said.

Nationwide said that the main source of demand since the middle of last year were homebuyers taking out mortgages, rather than cash buyers, despite the ongoing constraints to mortgage availability for those with small deposits.

The proportion of cash transactions averaged 43 per cent in 2008, when mortgages were most scarce, against 37 per cent in 2007. Mr Gahbauer said "This suggests that cash buyers did make some contribution to clearing the excess stock of housing on the market during the period in which mortgage finance was least available".

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