September House Prices Continue To Fall But Even Faster

30 November -0001

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More evidence that the house price fall is accelerating across the UK was presented on Friday, in further confirmation that the feel good factor is fast disappearing.

Figures from Hometrack, an independent research group, show that for the third month in a row prices in England and Wales fell in September, but more worryingly for home owners was the pace of the decline.

It gives the Government a potential headache with the threat that a slumping property market could badly damage its credentials for sound economic management.

Further if the housing market slide continues to drain confidence which then turns into a slowdown in consumer spending, then the government may have to re assess the positive forecasts for the economy’s growth in 2005.

Many experts believe that the turn in the housing market is already hitting consumer confidence hard it is expected that a number of surveys due out over the next few weeks will further confirm this.

Hometrack results, based on reports from 3,500 estate agents around the country, found a 0.3 per cent fall in average house prices this month. There were falls of 0.1 per cent in both July and August.

Hometrack also reported that the number of would-be buyers registering with agents dropped for a third month and fewer new sales were agreed, the time taken to sell a house has also increased with sellers accepting lower bids than the asking price.

“The housing boom is now well and truly over, and attention is on the wider economic fallout from an end to the property boom and fears of a potential crash in prices were stoked this week when the International Monetary Fund said that in circumstances like those in Britain there was “a danger that higher interest rates could trigger a much larger fall in house prices, with considerably more severe consequences for real economic activity”.

These concerns were mirrored this week among the Bank of England’s interest rate-setting Monetary Policy Committee. Minutes of its meeting this month showed members were anxious over “a greater risk of a more abrupt correction to house price inflation”.

Speculation is growing that the Bank’s concern could mean that interest rates are now close to a peak.

However, the Bank in a flimsy attempt to justify its policy published research arguing that even if prices did fall steeply this would not trigger a repeat of the negative equity of the early Nineties, when the value of homes tumbled below that of outstanding mortgages.

The Bank say fewer people purchased property at the peak of the boom now ending, and there are far fewer 90 per cent mortgage loans than in the nineties. As well both unemployment and interest rates much lower than in the early Nineties, the economic impact of even sharp price falls ought to be blunted.

Expert opinion backs the Bank of England’s view but the position is at a delicately balanced pivotal point that could due to a small amount of loss in confidence cause prices to plummet bringing on a crisis of similar portions to the one experienced in the nineties.

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