House price inflation increased by a mild 0.3% in June, the third month of subdued growth, Nationwide's latest house price index reveals.
The building society says annual house price growth is now at 5% but affordability constraints are continuing to have a dampening affect on inflation.
Overall prices increased by 1% in the three months to June, compared with 1.6% to May and 2.1% in the three months to March.
The annual rate of growth increased slightly to 5% in June, but only because there was a fall of 0.1% this time last year.
The price of a typical house is now £165,730, around £8,000 more in June last year and equivalent to a rise of almost £22 per day.
Fionnuala Earley, Nationwide's group economist, says the housing market is in a stable position. Economic indicators suggest growth is strengthening, and despite unemployment figures increasing for the fourth successive month in May, there are still increasing numbers of people in work, she says.
And the latest minutes from June’s meeting of the Bank of England’s monetary policy committee (MPC) was, says Earley, full of “ifs” and “somewhats”, they simply illustrate the finely balanced risks to inflation and hence interest rates.
“While financial markets are still pricing in an increase in rates by the end of 2006 and a further increase in 2007, the tone of the MPC was very measured, suggesting that they are still in wait and see mode and that interest rates are likely to remain at 4.5% for some time to come,” she says.
Meanwhile figures published by estate agents’ and house builders have recorded buyer and seller interest at the start of the house buying process and show signs of more buoyant demand in May after a weak April.
But while demand seems fairly stable, the deterioration in affordability is still a source of concern.
Nationwide says payments for someone on average earnings now take up around 42% of take home pay compared with around 32% three years ago. And while earnings growth remains lower than house price growth the ability to pay will remain a constraint on house price growth. As says Earley, will lending constraints in terms of income multiples and loan to value limits, especially for young first-time buyers.
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