U.K. House Prices Rise to Highest in Almost Two Years

U.K. house prices rose to the highest in almost two years in May and may keep climbing because of the lack of properties for sale, Nationwide Building Society said.

The average cost of a home increased 0.5 percent from April to 169,162 pounds ($248,000), the highest level since July 2008, the mortgage lender said in a statement published today. Home values are 9.5 percent below the peak reached in October 2007.

“Housing-market conditions remain characterized by thin transaction volumes and a relative scarcity of properties for sale, despite a slow return of more sellers in recent months.” Martin Gahbauer, Nationwide’s chief economist, said in the statement. “The current supply-demand balance on the market is still consistent with relatively stable to modestly upward trending prices.”

Britain’s housing market is recovering after values dropped by about a fifth in the recession. While record-low interest rates and the economy’s return to growth are supporting demand, banks in April still approved less than half the number of home loans than at the peak of the boom.

The pound traded near the strongest level in almost three weeks versus the dollar after today’s report and as British stocks snapped a three-day drop. The currency was up 0.3 percent at $1.4699 as of 10:31 a.m. in London today.

House prices are now 12.2 percent higher than at their trough in February last year, Nationwide said. From a year earlier, they rose 9.8 percent in May.

Home Loans

The U.K. economy grew 0.3 percent in the first quarter. Lenders granted 49,871 loans to buy homes in April, the most in four months, the Bank of England said yesterday in London.

Other house-price reports show a mixed picture. Rightmove Plc (RMV), owner of the U.K.’s biggest property website, said last month that London home sellers lowered asking prices for the first time this year in May.

“Easing supply shortages, overvaluation and, of course, the weak economic backdrop, all argue for renewed falls later this year,” Ed Stansfield, chief property economist at Capital Economics Ltd., said in an e-mailed note to clients. “We find it hard to avoid the conclusion that the house price revival will ultimately prove unsustainable.”

The lack of homes for sale may mean British house prices are overvalued, Standard & Poor’s said in a report this week. “The U.K. residential real-estate market has suffered from a chronic shortage of dwellings, which explains the home-price resilience,” S&P said, estimating that U.K. houses are about 21 percent overvalued. “The longevity of the current bounce back in prices remains a legitimate question.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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