Signs of recovery in UK housing market

LONDON - UK house prices rose for the first time in two years in August as a dearth of homes for sale pushed up prices in London and the southeast, Hometrack said.

The average cost of a home in England and Wales rose 0.1 per cent from July to £155,800 ($370,560), the London-based property research company said.

The increase, the first since July 2007, left house prices 6.7 per cent lower than a year earlier, the smallest annual decline in a year.

The report adds to signs that Britain is emerging from the sharpest recession in more than six decades. The slump has pushed house prices down 12 per cent since the peak in September 2007 on Hometrack's measure. Bank of England Governor Mervyn King said this month that any recovery will be "slow".

"After seven consecutive months of rising demand, agents and surveyors now believe that prices can be pushed upwards without any detrimental impact on sales volumes," said Richard Donnell, director of research at Hometrack.

"The headline figures are being skewed by price rises that are restricted to relatively small pockets of the market suffering from a lack of housing for sale."

Prices rose in Greater London, East Anglia and the southeast of England, Hometrack said. Prices were unchanged across the other seven regions surveyed.

Prices in England and Wales rose 1.7 per cent in July, the most since 2004, the government said on August 28. House prices increased 1.6 per cent in August, the fourth consecutive monthly gain, Nationwide Building Society said last week.

The economy shrank 0.7 per cent in the second quarter and unemployment is the highest since 1995. Banks are still restricting lending even after the Bank of England cut its key rate to a record 0.5 per cent and flooded the banking system with cash by buying billions of pounds of assets with newly created money.

"Fundamental obstacles to a sustainable housing market recovery still remain," Donnell said. "Mortgage availability continues to be an issue for first-time buyers who require large deposits to access the market, while unemployment levels, set to rise further, will continue to impact buyer confidence."

- BLOOMBERG