Biggest fall since records began

Tuesday, 05 August 2008 at 20:10 GMT, by SiteAdmin

The latest report from the Nationwide reveals that house prices have had their biggest fall since they began keeping records back in 1991. The annual fall now stands at a shocking 8.1% after prices dropped a further 1.7% in July. The average home now costs £169,316 which is almost £15,000 less than this time last year.

Sellers reluctant to drop prices

The survey showed that house prices have fallen for nine consecutive months. Sellers are remaining reluctant to accept reduced offers, which combined with the current lack of mortgage deals is pushing down house purchase activity.

"Household goods suffered in the collapse of retail sales in June. This is hardly surprising given the sharp slowing in housing market activity this year. House purchase transactions fell to 36,000 in June, only a third of the level of this time last year." said Fionnuala Earley, Nationwide's chief economist.

Hard Times Ahead

Ms Earley said that consumers are tightening their belts as economic conditions weaken.

"The latest batch of economic data has been fairly poor. GDP estimates for the second quarter show a slowing in each of the main economic sectors. Retail sales collapsed in June, reversing May's surprisingly strong outturn, and confirming the view that consumers are tightening their belts in the current climate. Inflation remains well above target and is expected to continue to rise this year and the labour market is also showing signs of deteriorating." she said.

Ms Earley said that sharp rises in fuel and food prices were having a "double edged" effect of pushing up inflation while slowing the economy by squeezing disposable income.

Some Good News

It's not all doom and gloom however, swap rates have fallen which in turn allows new fixed mortgage rates to come down. The MPC had expected to raise the base rate even futher but it now looks likely to remain stable for the rest of the year.

There are low levels of forced sales so sellers are not accepting lower offers. To some extent this is helping to prop up the house prices but it does however lead to reduced liquidity in the housing market. Over the last few weeks we have seen falls in the price of oil, this should help ease the inflationary pressures allowing the possibility of rate cuts in the future.

You can read the Nationwide press release here and a direct link the report here (opens as a PDF in a new window)

last updated 05/08/2008