GB: Nationwide HPI

Thu Oct 29 02:00:00 CDT 2015

Consensus Actual Previous
M/M % Chg 0.5 0.6 0.5
Y/Y % Chg 3.8 3.9 3.8

House prices rose for a fourth time in a row in October according to the latest Nationwide report. The lender's HPI increased a marginally larger than expected 0.6 percent on the month following an unrevised 0.5 percent gain in September to nudge the annual house price inflation rate a tick higher to 3.9 percent, its highest mark since May.

In the three months to October, usually regarded as the best guide to underlying trends, prices advanced 1.1 percent following a 0.8 percent rise in the July-September period. This matched the steepest quarterly gain in a year and would suggest that the market still has plenty of life left yet.

With increasing fixed rate borrowing now accounting for an estimated 90 percent of new lending for house purchase (95 percent for first time buyers), record low mortgage rates continue to underpin demand. Indeed, as a percent of take home pay, mortgage service costs remain close to their historic norm despite house prices hitting fresh highs each month. This could be important for when the BoE finally decides to raise Bank Rate as the impact on housing activity should not be a damaging as it might have been had flexible rate mortgages proved more popular.

Meantime, with supply as tight as ever due to inadequate construction, prices look likely to continue to rise well into next year.

House price information is derived from Nationwide lending data for properties at the post survey approval stage. Nationwide house prices are mix adjusted that is they track a representative house price over time rather than the simple average price.

Home values affect much in the economy especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers' ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

Although the Nationwide data are calculated similar to the Halifax method Nationwide substantially updated their system in 1993 following the publication of the 1991 census data. These improvements mean that Nationwide's system is more robust to lower sample sizes because it better identifies and tracks representative house prices. Historically, the data go back to 1952 on a quarterly basis and 1991 on a monthly basis.

Over long periods the Halifax and Nationwide series of house prices tend to follow similar patterns. This stems from both Nationwide and Halifax using similar statistical techniques to produce their prices. Nationwide's average price differs because the representative property tracked is different in make up to that of Halifax.