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2 August 2007

House prices rose again in July, but the underlying trend suggests activity is cooling, the Halifax said on Thursday
The report adds to evidence that the five interest rate rises in the space of a year have as yet only slowed but not derailed the housing market.

In its latest survey of residential property, the bank said the average price of a home was £198,915 last month, a 0.7 per cent increase on June.
Although this was the strongest number since April it was much weaker than the average increase of 1.5 per cent seen in the first three months of the year.
Annual house price inflation was 11.2 per cent in July.
Martin Ellis, chief economist, said: ”This is the fourth consecutive month that house prices have risen by less than 1.0 per cent, confirming that house price inflation is slowing.
“We expect the downward trend in house price growth to continue as the five interest rate rises since last summer have an increasing impact on household spending and housing demand,” he added.
However, the Halifax has recently raised its forecast for house price inflation in 2007 from 4 per cent to 6 per cent, and Mr Ellis said the market’s resilience reflected a benign economic environment.
“Sound economic fundamentals, high levels of employment and a shortage in the number of properties available for sale, particularly in London and the south-east, will, however, continue to support house prices,” he said.
Howard Archer at Global Insight noted that monthly housing market data from various sources can be volatile and sometimes conflict. Nevertheless, recent reports portrayed a sector that is starting to lose some of its effervescence.
He said: “We believe that the overall evidence indicates that the housing market has peaked and is gradually and erratically coming off the boil as demand is increasingly pressurized by the rising affordability pressures stemming from higher interest rates, modest real disposable income growth and elevated house prices.”
Mortgage holders will be waiting for news on the next move in interest rates at midday on Thursday. The Bank of England’s monetary policy committee is expected to hold the cost of borrowing at 5.75 per cent.
Copyright The Financial Times Limited 2007

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