By Brian Swint July 30 (Bloomberg) -- U.K. house prices increased for a third month in July as a shortage of supply helped shield the property market from the economic slump, Nationwide Building Society said. The average cost of a home climbed 1.3 percent to 158,871 pounds ($260,000) after rising 1 percent in June, the mortgage lender said in a statement today. Economists predicted a 0.2 percent increase, according to the median of 14 forecasts in a Bloomberg News survey. From a year earlier, prices fell 6.2 percent, the smallest annual drop since May 2008. The report adds to signs that the U.K. housing market may be starting to recover as the economy emerges from the worst recession in at least three decades. The Bank of England will decide next week whether to continue its program of buying bonds with newly created money. “House prices have been remarkably resilient this year, despite a recessionary economic background with sharply rising unemployment,” said Martin Gahbauer, chief economist at Nationwide. “It is unlikely that price increases can be sustained for long at the very strong rate observed over the past few months. One of the factors helping prices to stabilize in 2009 is the shortage of properties available for sale.” House prices rose 2.6 percent in the three months through July, the most since February 2007, compared with 1 percent growth in the period through June, Nationwide said. Former Bank of England policy maker Stephen Nickell said today that Britain needs to build 3 percent more homes than he estimated last year because the recession has hit homebuilding. U.K. mortgage approvals rose to a 14-month high in June, the Bank of England said yesterday. House prices rose 1.3 percent in the first seven months of 2009, suggesting values may rise “slightly” in 2009 after falling about 16 percent last year, Nationwide said. The central bank kept the key interest rate at a record low of 0.5 percent this month and voted for no change in the asset- purchase arrangements. Policy makers make their next decision on the benchmark rate and so-called quantitative easing on Aug. 6. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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