RTTNews - House prices in the U.K. rose for the third straight month in July, with the pace exceeding economists' expectations, suggesting that prices would be much better by the end of this year compared with the beginning.

House prices rose 1.3% month-on-month in July after climbing a revised 1% in June, data released by the Nationwide building society showed Thursday. Economists had forecast an increase of just 0.2%. Compared to the previous year, prices were down 6.2% after a 9.3% decline in June. Prices have been falling since April 2008 on an annual basis.

House prices have been remarkably resilient so far this year, despite a recessionary economic background with sharply rising unemployment, said Martin Gahbauer, chief economist at the Nationwide.

Gahbauer noted that even if prices were to remain unchanged for the rest of 2009, the year-on-year rate would continue to improve since prices were falling very sharply in the second half of last year.

The three-month on three-month rate of change, which is considered as a smoother indicator of the near term trend, rose to 2.6% in July from 1% in June. The current level is the highest since February 2007. Average house price in July was GBP 158,871, up from GBP 156,442 in June.

A cumulative increase of 1.3% in the first seven months of 2009 suggests that there is now a reasonable chance that prices could end the year slightly higher than where they started, the Nationwide said. Only a few months ago, such an outcome would have appeared unthinkable, it said.

The Nationwide chief economist noted that there was a fairly large pool of prospective purchasers who were ready and able to buy in the course of 2008, but the credit crisis and economic uncertainty refrained them from house purchase.

According to him, some of these purchasers have re-entered the market when government interventions stabilized the banking system, with the added assistance of very low interest rates.

But, he warned that if prices continue to increase at the rate seen in May, June and July, they would soon rise to levels that would be noticeably out of line with earnings, rents and other fundamental determinants of housing valuations.

Given the expected rise in unemployment, it is unlikely that price increases can be sustained for long at the very strong rate observed over the last few months.

Indicating that activity in the British housing market is likely to increase in the coming months, the number of mortgage approvals for house purchase rose to their highest level in more than a year in June, the Bank of England said Wednesday.

In the short run, the supply of homes on the market is mainly determined by factors such as potential sellers' confidence in market conditions, labor market turnover or financial pressures to sell among existing homeowners, Gahbauer said. Shortage of properties available for sale would be one of the factors helping prices to stabilize in 2009, he added.

To kick-start activities in the housing sector, the Housing Ministry on Monday announced a GBP 925 million scheme to fund 270 stalled projects across the country.

For comments and feedback: contact editorial@rttnews.com