House prices drop 1.7% in July

7 August 2008
House prices fell by 1.7% in July as the rising cost of living and continued lack of mortgage funding curbed demand from potential homeowners, according to Halifax.

According to the bank’s monthly report, house prices have fallen by 8.8% over the past year – a level not seen since December 1992. Halifax calculates that the price of an average house is now £177,351, where it stood at in June 2006.

The figures echo those published last week by Nationwide Building Society, which reported a 1.7% fall in July and an annual drop of 8.1%.

“Pressure on householders' income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, is constraining potential house buyers' ability to enter the market,” said Suren Thiru, an economist at Halifax. “This is resulting in both lower prices and activity levels.”

Richard Meeson, a partner at estate agents Dreweatt Neate, believes the figures didn't come as a surprise. “Confidence is low, mortgage finance is harder to find and buyers are holding back, so you would expect house prices to have fallen at these levels. The statistics are an accurate reflection of what is happening right now in the property market,” he said.

However, Thiru believes that continued high levels of employment would continue prop up the housing market over the coming months. The number of people in employment increased by 61,000 over the three months to May compared with the previous quarter, and by 413,000 over the past year to a record 29.59 million.  

"A solid labour market, low interest rates and a shortage of new houses continue to support the market," he said.

But despite Thiru’s optimism, Global Insight’s chief economist Howard Archer is less cheery. “High house prices, modest disposable income growth and the squeeze on purchasing power coming from soaring utility bills, high food prices and tight credit conditions have led to fewer and more expensive mortgages being available,” he said. “We therefore believe house prices will fall by 15% in 2008 and 12% in 2009 before house prices flatten out in the latter months of 2010.”

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