The recent release of the Halifax house price index surprisingly reported a 0.8% month on month rise in Jan 2011. Chart.1 below shows that monthly change has become less predictable. My view is that the low transaction volumes have lead to increased uncertainty in short-term measures of house price momentum. The standard deviation of monthly change in house prices has risen two-fold since mid 2006.
Chart.1 House Price Monthly Change – Unpredictable
However, the medium term measure indicates a downward trend in house price. Chart.2 shows the popular and less volatile indicator of house price trend, 3 month on previous 3 month. This indicator peaked in Nov 2009, and recently the rate of decline in house prices as decelerated. In Jan 2011 3 month on previous 3 month declined 0.7 %,( Dec 2010 0.8%), for the eighth consecutive month.
Chart.2 3 month 3 month Change- Downward Trend decelerated
Consequently, the annual change in house prices continues to decline, erasing the gains made in the early part of 2010. In terms of prospects for 2011, Halifax states: “We expect limited movement in house prices overall this year. There are, however, likely to be some monthly fluctuations with the risks on the downside.”
In previous blog http://wp.me/pTU04-5p it was highlighted that the balance of demand and supply will dictate the pace house price growth. Halifax takes a similar view:”On a positive note, there have been further signs that the recent downward trend in prices is causing homeowners to be more reluctant to put their properties on the market.” The actions of sellers and buyers will determine the direction and pace of house prices. My 2011 view is that prices will follow downward trend, at moderate pace. The moderate pace is due in part to low interests rates and positive rental trend. This results in lower levels of new instructions (inflow of existing stock). A headwind for the house prices is the tight mortgage market characterized high loan to value levels. This restrains new buyer enquires. Thus, the balance of between the indicators will determine prices.