Nationwide remains optimistic on housing soft-landing

According to a survey by Nationwide, house prices increased by 0.2% in July and the average house cost £158,348. During the three months to the end of July house prices increased by 0.6%. However, the annual rate of house price inflation fell to 2.6%, its lowest rate since May 1996.

The Nationwide said that although transaction levels were still significantly lower than last year, there were indications that the housing market was recovering, with estate agents reporting an increase in buyers, and vendors showing a willingness to negotiate on prices.

According to the Nationwide, the annual rate of house price growth fell below wage growth for the first time since May 1996. A cut in interest rates is expected when the Bank of England meets next week, providing a stimulus to the housing market, although Nationwide said that it was unlikely to cause acceleration in the rate of house price growth.

Although the UK property market has weakened over the past year, a substantial fall in house prices is not anticipated. A recent study by the Centre for Economic and Business Research said that although prices would fall 5% by 2007, a crash was unlikely.

Experts at Capital Economics, however, said that prices could fall by as much as 7% by the end of the year.

The Nationwide does not expect the market to slump, but anticipates that house prices will fall gently for some time.