House prices received a surprise boost in December thanks to subdued supply according to the latest survey by Nationwide Building Society.
Nationwide recorded month-on-month price growth of 0.6% in December, the same monthly rate as in November, but beating market expectations of just 0.2%. The annual rate of growth, however, pushed up to 3.2% from 2.6% and beat forecasts of a dip to 2.5%.
The increase was unexpected given the subdued and slowing rates of growth seen in the months before December and the softening in other metrics relating to housing market activity.
Retail sales and consumer confidence softened over the Christmas period after a relatively strong November as household budgets remained squeezed by high inflation and low wage growth.
Against this background, mortgage approvals slipped to their lowest levels for three years in December and surveyors presented a gloomy outlook as they reported slowing buyer enquiries.
“The acceleration in annual house price growth is a little surprising, given signs of softening in the household sector in recent months," said Robert Gardner, chief economist at Nationwide.
However, he added, activity had been subdued on both the demand and supply side of the market.
"The flow of properties coming onto estate agents’ books has been more of trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics agreed the rise in the annual growth rate was difficult to reconcile with other indicators.
Rightmove, the online estate agent, reported that asking prices rose just 1.1% year-on-year in January, while the Royal Institution of Chartered Surveyors (RICS) reported its net balance of surveyors expecting house prices to increase over the next three months fell to minus 6.
Tombs added: "With real wages on course to increase only modestly this year and mortgage rates set to remain on a rising path, we doubt that house prices can continue to climb this year."