Monday, 10 January 2011

House Prices Down

House prices down by 1.6% in 2010

Halifax says house prices fell by 1.3% in December and 1.6% in 2010, with the rate of decline 'slower' than the falls seen in 2008
House prices fell by 1.3% in December, contributing to a 1.6% decline over the whole of last year, according to figures released by the Halifax this morning.

However, the lender pointed out that the quarterly price change (lenders' preferred measure because it smoothes out monthly volatility) from October to December dropped just 0.9% compared to the previous quarter. Martin Ellis, housing economist for the Halifax, said the quarterly rate of decline was "significantly less than the quarterly falls of 5%-6% during the second half of 2008".

The slow rate of decline mirrors what housing minister Grant Shapps said was necessary to allow struggling first-time buyers to find homes they could afford.

However, Ellis said that while continued low interest rates would help make mortgages more affordable for first-time buyers, with new borrowers having to use 29% of their average disposable earnings to meet typical monthly mortgage payments in the last quarter of last year, compared to 48% in mid-2007, it has made it easier for existing homeowners to resist putting their homes on the market.

"Interest rate rates are likely to remain very low for some time. This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell.
"Current signs that homeowners are becoming more reluctant to sell would, if continued, help reverse the imbalance between buyers and sellers. Nonetheless, uncertainty about the economy, weak earnings and higher taxes could put some downward pressure on demand"
Howard Archer, chief UK economist for IHS Global Insight, was more gloomy about mortgage rates, believing inflation could force the Bank of England into an early rise.

He added that the 0.9% fall in the last quarter of 2010 was consistent with his predictions for house prices in 2011: "If our forecast of a 10% correction proves to be right, average house prices on the Halifax measure will drop to £152,536 in 2011 – a decline of £10,899 from the December 2010 level of £163,435. This means house prices will fall around 7% in 2011."

Price falls are likely to vary in size around the country depending on the impact of public spending cuts, according to the Halifax. James Scott-Lee, chairman of the Chancellors Group of estate agents, agreed, saying the headline Halifax figure could not summarise regional variations within the market.

"The Halifax house prices figure will doubtless trigger more doom and gloom," he said. "However, while there has been an easing down of prices, as supply has come through and demand has weakened, in certain towns and cities – not least the capital – the right type of property is still commanding the right sort of price.
"Poor quality properties in areas of oversupply are under real pressure but sought-after properties in areas of high demand are still performing well."
He added: "Come the end of 2011 we expect prices in London and the south-east to be higher than they are at present, while towns and cities in the north could suffer further price falls."

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