House price retreat continues

Written by renxue January 09, 2008 16:31

Latest housing market data from the Nationwide Building Society shows house prices falling by 0.8% in November, bringing the annual rate of increase down to 6.9%. That's the first monthly fall seen since February and is the largest monthly decline since June 1995. Meanwhile, the average price of a UK property slipped back to £184,099.

Fionnuala Earley, Nationwide's Chief Economist, said the 0.8% fall reversed October's surprisingly strong performance and brings annual house price growth back in line with the softening trend seen in the second half of the year. It's also consistent with the Society's forecast of house price growth of 5-8% in 2007.

Earley notes however that monthly data can be volatile and the sharp fall this month is partly a reflection of the strength recorded last month and in November last year. Indeed, a better picture of the underlying trend is captured in the three-monthly growth rate. This too fell back into line with its softening trend in November, returning to 1.5% from the 1.8% recorded in October.

November's data confirms that the housing market is indeed cooling in line with the weakening in housing market drivers. Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates, have all affected demand in the market.

House purchase approvals, a good barometer of real market demand, have weakened from a peak of 128,000 a month in the final months of 2006 to 102,000 in September. "We expect this activity to continue to fall back throughout the rest of this year, and into the next," says Earley.

Earley adds that expectations are for economic conditions to be more difficult for the housing market next year, but not to the point of it leading to a market recession. Furthermore, with interest rates on the way down and the continued issue of undersupply of housing in the UK market, the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest.

As if to emphasise the current weakness of the housing market new figures from the Bank of England show mortgage approvals falling to their lowest level in nearly three years in October, with mortgage lending also slowing sharply.

Mortgage approvals for house purchase fell to 88,000 in October from a downwardly revised 100,000 in September. This was well below forecasts and the lowest since February 2005.

Meanwhile, mortgage lending growth slowed more than expected to £7.327 billion from a downwardly revised £9.488 billion in September - the lowest reading since July 2005.

However, the appetite for unsecured debt continued apace, with a rise of £1.439 billion from £1.322 billion in September. This was the largest rise since January 2006.