Will they start to recover soon or are house prices doomed to drop further? Read on to find out...
Annual house prices in England and Wales officially fell by 12.2% in November 2008, according to the latest figures published from Land Registry. The average house price is now £161,883 representing a monthly decrease of 1.9%.
Halifax BS said house prices declined by 2.2% in December, to bring the average cost down to £159,896. For 2008 as a whole, prices fell 16.2%, the biggest annual decline since Halifax began keeping records in 1983. The average price of a UK home has fallen to levels not seen since August 2004, it claimed, and homes are now more affordable than at any time since April 2003, when set against earnings.
Nationwide BS has also published its latest figures. It claims house prices fell by 2.5% in December, and annually declined by 15.9%. Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said: 'The price of a typical house fell by 2.5% in December, a stark contrast with the modest fall of 0.4% in November. The annual rate of fall over the last 12 months is 15.9%.'
House prices have fallen by 20% from their peak in October 2007. Earley said: 'The price of a typical house is now £153,048, around the same level as of spring 2005, but still over £17,500 more than five years ago. Conditions remain highly volatile going into 2009, making it more difficult than usual to arrive at a specific forecast for house prices.'
'While house price falls are helping to improve affordability and the steep drop in interest rates will provide some further support, all of the typical affordability measures are still above their long-run averages. This suggests that prices have further to fall before significant numbers of buyers will be willing to return to the market. But, as the market adjusts, property will start to look cheaper and this will encourage more activity.'
Nationwide feels that an important underlying factor which it expects will play a part in the recovery of the market is a likely build-up in pent-up demand since 2003. Since then, first time buyers have made up only 33% of transactions, compared to an average of 46% since 1979.
If one assumes that the same proportion of first time buyers would have liked to have entered the market, it is possible to work out how many have been ‘locked out’. This adds up to about 750,000 buyers over the 2003 to 2007 period, which is more than the total number of house purchase transactions expected in 2008.
Earley said: 'Clearly this estimation is fraught with uncertainty and sensitive to assumptions, but it does appear likely that a substantial pool of pent-up demand has been building up, which could make its way back into the market when affordability improves and economic conditions and house price growth expectations stabilise.'
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