By Ilona Billington and Anita Likus
LONDON -- U.K. house prices posted an unexpected increase in March, rising 0.9% from February in the first monthly gain since October 2007, the Nationwide Building Society said Thursday.
The U.K.'s largest mortgage lender cautioned that despite the increase it was too soon to say that the bottom of the housing market had been reached.
The data surprised economists who, in a survey conducted by Dow Jones Newswires last week, had forecast a 1.9% fall on a month-to-month basis in March and a fresh record decline of 18.5% on an annualized basis. Nationwide revised the February monthly drop to a 1.9% decline after originally reporting a 1.8% fall from January.
The March house-price index showed that the annual measure of house prices fell 15.7% compared with a year earlier, and followed a 17.6% fall in January.
Analysts were wary about making assumptions about the housing market on one month's data, especially in a climate of tight lending and big job losses. But investors greeted the figures with enthusiasm and sent the share prices of U.K. home builders higher.
"The surprise rise in house prices in March does not mean that the housing market correction is finished," said Capital Economics' Seema Shah.
"Monthly house price indices are volatile, so one month's increase is likely to be a blip in the underlying downward trend," he said. "What's more, with the economy contracting sharply and lending criteria still tight, downward pressures on house prices remain strong."
Liberum Capital analyst Charlie Campbell, who is "neutral" on the sector, agreed that it was far too early to call an end to the correction and "if the next set of figures from Halifax turn out positive we might start thinking about a general uplift."
He noted that the Halifax figures also showed positive signs in January but turned negative again in February.
On recent trading, Berkeley Group Holdings /zigman2/quotes/202576163/delayed UK:BKG +3.09% PLC shares rose 3.6% to 948 pence ($13.69), while Persimmon /zigman2/quotes/206444744/delayed UK:PSN -0.56% PLC gained 5.2% to 380 pence. Shares in Taylor Wimpey /zigman2/quotes/208623755/delayed UK:TW +0.17% PLC jumped 16% to 27 pence and Barratt Developments /zigman2/quotes/209812640/delayed UK:BDEV +0.08% PLC advanced 8.7% to 97 pence. Bellway /zigman2/quotes/208360300/delayed UK:BWY -0.49% PLC shares rose 5.6% to 758 pence.
The Nationwide data follow an increase in the number of mortgage approvals reported by the Bank of England. The BOE said Monday the number of approvals totaled 38,000 in February, the highest level since May, 2008, while the Royal Institution of Chartered Surveyors has consistently been reporting a pickup in the number of buyer inquiries in recent months.
Despite this positive news, economists believe that house prices will continue to fall this year as tight credit conditions and higher loan-to-value ratios keep would-be house buyers in an awkward position.
Fionnuala Earley, Nationwide's chief economist, said that house prices are unlikely to see sustained increase just yet. "The Bank of England has already taken strong measures to ease the tensions in economic and financial markets by cutting rates and commencing quantitative easing," she said. "However, it will take time for these to work through into the housing market before we can expect a sustained recovery in house prices."
Nationwide also reported that its quarterly house-price index for the first three months of 2009 showed prices fell 4.2% between January and March, compared with the fourth quarter of 2008. The annual measure declined 16.7% in the first quarter of 2009, compared with a year earlier. That compared with a 4.7% fall on the quarter in the final three months of 2008.