House prices picked up in October as August’s interest rate cut kicked in, but it is too early to say the market has reached a turning point, said Nationwide today.

The building society said house prices increased by 1.3 % in October bringing the annual growth rate to 3.3%, more than reversing the falls seen in August and September. The price of a typical house in the UK is now £157,107 compared to £152,159 this time last year.

Headlines	October 2005	September 2005
Monthly index * Q1 '93 = 100	314.6	310.5
Monthly change*	1.3%	-0.2%
Annual change	3.3%	1.8%
Average price	£157,107	£156,517
* seasonally adjusted

The annual rate of growth now stands at 3.3% up from 1.8% last month, but remains subdued in comparison to this time last year when house price inflation was running at over 15%. Prices in the three months to October increased by a more modest 0.2%.

Fionnuala Earley, Nationwide's Group Economist, said: "The questions for the market now are whether we are at a turning point and whether we should expect to see house prices beginning to pick up after the steady slowdown during 2005."

"Estate agents have also consistently reported an improvement in demand over the last few months as house prices have softened. But we think that it is far too early to say that the market has reached a turning point and that prices will continue to accelerate from here."

There are a number of reasons for this view:

• Housing market affordability remains stretched. "Affordability and overall debt levels will still have to adjust to more comfortable levels before we can expect any widespread increase in demand and thus prices," said Fionnuala Earley.
• Current boost generated by rate cut. "Given the lags in the house buying process," said Ms Earley, "the robust increase in prices in October is likely to reflect a response to the cut in interest rates in August, with borrowers who had already decided to buy a house postponing their action in anticipation of a widely predicted cut in interest rates."
• Expectations of house price movements are more modest now than at the start of the year, but remain consistent with a market that is adjusting back to more sustainable levels, rather than accelerating or crashing.

Nationwide concluded that overall, the data this month suggest a stabilisation in the market rather than a turning point into a period of accelerating house prices. "However, it will remain sensitive to movements in expectations, confidence and wider macroeconomic developments – especially in the labour market," said the report.