Spring bounce for house prices
House prices have fallen by 4.2% so far this year, with the average value of a property now at £149,709.
The latest Nationwide house price index reveals that in the first three months of 2009 prices fell across all regions of the UK, with the average drop at 4.2%. In comparison, the final three months of 2008 saw values plummet by 4.7%.
Nationwide says that, on an annual basis, house prices at the end of March were 16.5% lower than the same month last year. However, during the month of March, prices increased by 0.9% and house purchase activity reached its highest level since May 2008.
Fionnuala Earley, chief economist at Nationwide, says that evidence of market improvement should not be taken as a sign that a recovery is on the cards.
“The first quarter of 2009 saw little improvement in the performance of the housing market across most of the UK,” she explains. "There was some moderation in the rate of [house price falls] but given the weakening economic and labour market background, this is unlikely to be a signal of a very significant change in the direction of house prices in the short-term.”
The bounce in house prices in March saw the price of a typical house increase for the first time since October 2007, rising by 0.9%. However, Earley says this slight rise is “distorted” by conditions last year.
“It would be unwise to draw strong conclusions from the significant slowdown in the annual rate of fall,” she warns. “Equally, while the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached.”
Over the course of the year, Northern Ireland saw the biggest fall in prices, while Scotland saw the smallest. Unsurprisingly, London remains the most expensive region, while property in the North of England is the cheapest.
While average falls across the UK were 4.2% in the first quarter, on a regional basis the picture looks quite different. Nationwide reports Northern Ireland, while recording the largest annual rate of falls, was the only part of the UK to see a moderation in the rate of the decline during the three-month period.
Scotland, meanwhile, is experiencing the slowest annual rate of decline in house price across the UK. However, Earley says the pace of fall in prices in the first quarter of 2009 picked up significantly – giving it one of the highest rates of falls behind Wales, East Anglia and London.
“Problems in the financial services industry in Scotland are likely to be having a significant impact on confidence in Scotland given the importance of banking and finance to its economy,” she adds.
Among the English regions, house prices in the South fell at a faster annual rate than those in the North. East Anglia suffered the largest fall for the second consecutive quarter at 19.9%, while all of the regions of the South East of England recorded annual falls of more than 15%.
In contrast, the South West was the only part of England where the rate of house price falls remained stable.
Bath, Durham City, Glasgow and Edinburgh are named as the most resilient cities in the Nationwide house price index, with property prices experiencing annual falls of between 7% and 10%. Belfast, Norwich, St Albans and Newcastle, however, are four cities suffering the faster rate of decline – of up to 37% over the year.
Within London, the first three months of the year saw house price falls speed up. Nationwide reports that prices fell by 18.2% during the quarter, up from 15.1% during the past four months of 2008.
However, on an annual basis, the period saw no change in the rate of declines.
Earley says that the capital is experiencing some of the biggest house price falls across the whole of the UK, with Londoners the most pessimistic about the outlook for the housing market.
Outlook for house prices
Nationwide is not the first commentator to report a rise in house prices. Most recently, Hometrack’s figures found that prices fell 0.6% over March – the lowest monthly decline for 10 months. The survey also found that the average time a property spends on the market has fallen to 11.3 weeks from 12 weeks - suggesting that people are either taking their homes off the market or selling more quickly than in previous months.
The latest Bank of England figures also suggest that the major barrier to homeownership – restricted mortgage lending – could be easing. It reported a rise in the number of mortgage approvals in February, with loans approved for buyers increasing from 32,000 to 38,000 - their highest level since last May.
Nationwide says the increase in mortgage approvals, while welcome, are still far below what they were when the boom started in 1993. Earley says: "The upturn is welcome and is certainly a signal that there is some movement in the market. However, it is still too soon to say that this will be the beginning of sustained house price rises and a reflection of a wholesale return of confidence to the market."
The increase in mortgage approvals and slight rise in house prices in March seem to collaborate reports of increased buyer interest in property. However, consumer confidence is still weak, with rising unemployment putting particular pressure on many people.
Seema Shah, property economist at Capital Economics, says the rise in March doesn't change much: "Monthly house price indices are volatile, so one month’s increase is likely to be a blip in the underlying downward trend. What’s more, with the economy contracting sharply and lending criteria still tight, downward pressures on house prices remain strong."
David Smith, senior partner at Dreweatt Neate estate agents, says: “Looking at the state of the economy, it is impossible to believe this bounce will be the start of a sustained rise in prices. I think a sideways-moving market is far more likely for the rest of 2009.”
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