Nationwide says house price falls are slowing

Nationwide Building Society claims the pace of house price falls slowed significantly in June. House prices fell by 0.9% during the month, less than half of the rate of the 2.5% fall recorded in May. House prices in June are now 6.3% lower than this time last year and have fallen 7.3% from their peak last October.

The price of a typical house is now £172,415. This is over £13,500 less than it would have cost at the top of the market and over £11,500 less than this time last year. However, Fionnuala Earley, Nationwide's Chief Economist, says, "The strength of house price growth up until last year means that prices are still 4% higher than two years ago and 9% higher than three years ago."

Others are less sanguine, Seema Shah, Property Economist at Capital Economics notes that house price falls have now extended into an unprecedented eighth consecutive month in June. Commenting on Nationwide's figures, she believes, "Junes fall, while smaller than May's tremendous drop, is not an indication that the housing market slowdown is beginning to let up. Firstly, volatility in monthly house price data is not unusual. Secondly, yesterday's Bank of England numbers showed that mortgage approvals have plummeted and are just a third of the level a year ago. They are pointing to further sharp falls in house prices in the months ahead.

"What's more, mortgage interest rates are rising and the economy and labour market look on course for a sharp slowdown. The bottom line is that the housing market is in only the early stages of a deep and extended correction."

Capital Economics' forecast is for house prices to fall by 15% this year, and to continue falling in 2009 and 2010.

House prices fell in all regions in Q2, with Northern Ireland recording the largest decline 9%q/q. Wales and East Anglia also registered house price falls of 5% or more, while only two regions, South West and Scotland recorded falls of less than 2% -1.3% and -1.8% respectively. Prices are now down on an annual basis in all regions bar Scotland.

Even Nationwide's Earley is not optimistic about the outlook for mortgage rates in the short term, "While we do not expect an early change in the Bank Rate, the implications of inflationary pressure on funding rates are more stark.

"The two year swap rate, which is the underlying benchmark for the most popular types of mortgage, two year fixed rate loans has increased along with market expectations of increases in bank rates and this has resulted in more frequent mortgage repricing. The tightening of credit conditions over previous months along with changing expectations of house price growth and a general weakening in consumer confidence in the economy have hit mortgage demand and led to a severe slowing in the levels of housing market activity.

"The level of transactions is a key driver of house prices. Changes in transaction levels are a good indication of the likely path of prices and across housing cycles have tended to lead changes in house prices by a few months. In the most recent cycle the number of house purchase approvals began to moderate in the first quarter of 2007, whereas annual house price growth did not begin to slow until the third quarter. The number of house purchase approvals per month is now at historic lows and in May was running at less than half of its long run average rate."

On the plus side for the outlook for the housing market, first-time buyers activity as a proportion of overall house purchase completions has held up fairly well. First-time buyers accounted for about one third of house purchase transactions in the first quarter of the year, exactly in line with the average over the last three years.

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2008-07-01 12:02:50 © Moneyextra.com