House price falls slow across UK
House prices rose by an average of 1.1% during the second quarter of the year, with all regions of the UK seeing a moderation in the rate of house price falls.
The latest data from Nationwide shows a “significant improvement” in house prices between April and June, with the latter month seeing a 0.9% rise in average values.
London, the South East, East Anglia and Wales saw the biggest improvement in price trends. House prices are now 11.7% lower on an annual basis, compared to 16.5% down at the end of the first quarter. The price of a typical house at the end of June was £156,442 - 9.3% lower than a year ago but still the first single digit annual fall since July 2008.
The data show a couple of positive indications. For one, the three-month rate of change - which Nationwide says is more significant than monthly changes - turned positive for the first time since December 2007.
Martin Gahbauer, chief economist at Nationwide, explains: “"House prices have now risen in three of the last four months, suggesting that the improvement that began to show up in March represents more than just statistical noise.”
At the same time, if the pattern of price movements seen in the first half of the year is repeated over the latter six months, then Gahbauer predicts the annual rate of house price falls in 2009 will be single digit – a “stark shift” from trends seen at the turn of the year, when evidence suggested 2009 would suffer a repeat of the large declines seen in 2008.
However, house sales are still at very low levels, with mortgages approvals 55% below the long-run average and a limited number of homes on the market for purchase.
“Normally, such a low level of house purchases would be associated with falling house prices,” explains Gahbauer. “[But potential sellers and builders have responded to depressed demand conditions by reducing the supply of property coming onto the market. As a result, prices have been able to stabilise even in the face of very low demand."
Meanwhile, other data out this week has led to some economists claiming the housing market recovery has stalled.
Although the rate of house price falls have slowed for the third successive month in June, official data from the Bank of England shows that mortgage lending in May rose by the smallest amount since 1993.
Vicky Redwood, UK economist at Capital Economics, says: "It seems that a combination of weak demand (given rising unemployment etc) and tight credit conditions are preventing any sustained recovery in the housing market from taking hold."
According to property expert Hometrack, demand for property continues to rise, which is helping slow the rate of house price falls. Its figures show average values were 8.7% lower in June compared to the same month last year; in contrast, prices in May were down 9.6% year-on-year. Sellers are also receiving, on average, 91% of their asking price - the highest point for a year.
Richard Donnell, director of research at Hometrack, says: "A lack of supply and rising demand have combined to prop up house prices in the last two months. Over the last six months, the volume of buyers has grown by 36%, compared to a 6.4% increase in the number of homes for sale."
However, overall transaction levels are still deeply depressed, and the volume of new properties entering the market remains well below average with a rise of just 0.8% in June on the number of new home listings.
Significantly, though, the Bank of England's latest lending figures show that mortgage lending rose by £324 million in May - representing just a third of the total seen in April. The figure is also the lowest since records began in 1993.
Meanwhile, lending by building societies is also markedly down year-on-year. The Building Societies Association (BSA) reports that gross mortgage lending by building societies stood at £1,515 million in May, down from £3,350 million in May 2008.
Adrian Coles, director general of the BSA, says: "While the mortgage market appears to have recovered slightly from the start of the year, levels of activity remain depressed."
Charles Davis, economist at Charles Stanley, predicts that the overall economy is now set to grow, but warns that this is likely to be weaker as long as mortgage lending remains tighter than pre-credit crunch.
Although the Bank of England recently reported mortgage approvals for house purchases climbed for the fifth time in six months in May, this was still at a less-than-expected rate.
Howard Archer, chief UK and European economist at IHS Global Insight, warns that this means a pick up in property prices can only be gradual. In addition, rising unemployment and muted wage growth are preventing people from buying property.
"We still suspect that house prices will fall by another 10% from current levels to trough around mid-2010," Archer adds. "However, we acknowledge that there is an increased possibility that this could be too pessimistic a view, particularly if the economy sustains its recent improvement and unemployment rises less than we fear over the next year or so."