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Reservations on strength of housing market

Just as property websites see continuing increases in asking prices, the mortgage lender Nationwide announced today that prices fell back 0.2% in February.

This news, plus the fact that traditionally buyers return back into the market in the spring but weak economic factors make this look less likely this year combine to cast doubt on the recent strength of the housing market, said Nationwide today as it released its February housing market report.

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Headlines	February 2006	January 2006
Monthly index * Q1 '93 = 100	320.8	321.3
Monthly change*	-0.2%	1.5%
Annual change	3.7%	4.4%
Average price	£158,573	£158,478
*Seasonally adjusted

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Commenting on the figures Greg Fuzesi, Nationwide's senior economist, said: "House prices fell by 0.2% in February following a strong 1.5% increase in January. The average house price in the UK is now £158,578, 3.7% higher than at this time last year."

"As we enter the all-important house buying season in March, the prospects for both house prices and interest rate policy will become clearer. It will also show whether February's fall is just a pause before the spring rush or the first sign of weak market fundamentals weighing down on prices."

"We expect the weaker economic factors to begin to dominate over the next 2-3 months and to prevent strong house price rises in 2006.

The number of mortgage approvals for house purchase rose sharply throughout 2005, reaching another high of 122,000 in December. "This raises the question of how much demand remains in the market to be unleashed in the spring," said Mr Fuzesi.

According to Mr Fuzesi, there are two reasons why the pickup in activity this spring may not turn out to be strong. Firstly, many first-time buyers continue to be priced out of the market. Secondly, uncertainty about the strength of the economy may lead to the delay of some house purchase decisions. A complicating factor is that buy-to-let investors seem to have been behind some of the increase in recent activity.