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UK house prices spark cautious optimism

Robert Barr
AP Writer

London — House prices in Britain rose 2.6 percent in May, the biggest increase in more than two years, the nation’s largest mortgage lender reported Thursday, boosting hopes the recession might have bottomed out.

In its house price survey, Halifax nevertheless cautioned that a one-month increase does not necessarily mean the general trend of falling house prices has been reversed. Compared with a year earlier, prices were down 16.3 percent.

“It is always important not to place too much weight on any one month’s figures,” said Halifax economist Nitesh Patel. “Historically, house prices have not moved in the same direction month after month even during a pronounced downturn.”

Prices in the March-May quarter were 3.1 percent lower than in the previous three months, Halifax said, adding this was not as bad as the 5 to 6 percent declines in the second half of last year.

Halifax noted that during the house price slump of 1991-92, when prices dropped by 11 percent, there were still five months when its survey found prices increasing.

The good news for buyers is that houses have become more affordable. Average house prices in May were estimated to be 4.36 times earnings, down from the peak ratio of 5.84 in June 2007. This affordability measure is now approaching the long-term average of 4.0, Halifax said.

Imran Akram, analyst at Collins Stewart, on Wednesday upgraded his rating to “buy” for Taylor Wimpey, a major U.K. homebuilder, in a cautiously optimistic report on the sector.

“Buyers are trickling back into the market helped by lower prices, a slight pickup in mortgage availability, and lack of alternatives for cash buyers and government schemes like the Homebuy Direct initiative,” Akram said in a research note.

HomeBuy Direct is a part-purchase plan in which first-time buyers must finance 70 percent of the purchase price while the government and the developer take a 30 percent equity stake.

Lack of supply was supporting prices, Akram said, predicting a maximum production of 75,000 housing units this year compared to long-run studies that peg annual demand at 230,000.

“The duration of this housing downturn remains a key worry for us,” Akram added, noting that the unemployment rate of 7.1 percent is still well below the peak of 10.7 percent during the slump in the early 1990s.

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