Warning as house price fall eases
By Norma Cohen
Published: November 27 2008 08:18 | Last updated: November 27 2008 08:18
UK house prices fell at a more moderate pace in November, easing by 0.4 per cent to stand 13.9 per cent lower year on year, according to the latest Nationwide House Price Index.
The rate of decline is significantly less than that seen in October when house prices fell by 1.3 per cent.
Fionnuala Earley, chief economist at Nationwide, said on Thursday that the average house price was now £158,442, roughly £25,000 lower than this time last year but still about £25,000 higher than the average price in November 2003.
“In spite of the moderation in house price falls recorded in November, with the economy in recession conditions do not appear very favourable for a swift recovery in the housing market,” Ms Earley said.
In addition, the labour market is weakening, leading to uncertainty about the stability of homebuyers’ future income streams. Moreover, with house prices falling, Ms Earley said that prospective buyers had little reason to rush into the market now.
Nonetheless, she said that steep falls in interest rates in recent weeks should soften the impact of other factors weighing on housing. In particular, the estimated one-third of borrowers who are on tracker mortgages – where rates move in line with those linked to Bank of England rates – “benefited one for one” from rate cuts.
Ms Earley said that one particularly acute feature of the current housing market was the fact that turnover is so low. “Turnover has fallen to historic lows, even below the levels in the 1990s when economic conditions were worse than they are today,” she said.
At the trough of the market in the fourth quarter of 1990, interest rates were at 14 per cent and there were almost double the number of unemployment claimants. Despite that, a greater proportion of owner-occupiers were taking out mortgages to move house and 60 per cent of first-time buyers were taking out mortgages worth 90 per cent or more of the purchase price.
Ms Earley said that caution among lenders may be a factor in limiting turnover.
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