House prices fell by 0.4% in November, the smallest monthly drop in house prices since they started falling in November 2007.
According to latest figures from the Nationwide, the price of the average house is now £158,442 - roughly £25,000 less than this time last year. However, November’s fall was much smaller than expected compared with October’s 1.3% drop.
On an annual basis, house prices have fallen by 13.9% - easing slightly from the 14.6% annual fall recorded in October. Alternative figures from the Land Registry show house prices in England and Wales have fallen by over 10% since October last year.
However Fionnuala Earley, chief economist at Nationwide, says it’s still unlikely that we’ll see a swift recovery in the housing market.
“The labour market is weakening, which will inevitably hinder market demand, particularly when property remains expensive relative to earnings. With prices falling at their current rate there is also little incentive for new borrowers to hurry into the market,” she adds.
Howard Archer, chief UK and European economist at Global Insight, also doubts that house prices will stop falling.
“Ongoing very tight credit conditions, a recession, faster rising unemployment and widespread expectations that house prices are likely to fall a lot further form a powerful set of negative factors weighing down on the housing market,” he explains.
Archer believes that house prices are likely to fall by a further 15% in 2009, which would take the price of the average house to just £132,327.
Conditions in the housing market have deteriorated rapidly this year, with banks and building societies reluctant to lend. The latest data from the British Bankers' Association showed that just 21,584 mortgages were approved in October, the second lowest since 1997 and down 66.3% from the July 2007 peak level of 64,014.
However, Earley points out that if the cost of borrowing for mortgage lenders falls, activity in the housing market will pick up and this would help to promote a swifter recovery.
Trevor Williams, chief economist at Lloyds TSB, agrees: “The consensus view is that house prices will keep falling well into 2009, but interest rate cuts could help to mitigate this. Eventually house prices will stop falling once the recession is over and employment levels recover.
"However, although the increase will be much more muted, house prices will return to the levels seen last year.”
Seema Shah, property economist at Capital Economic, says the “moderate” fall is not a sign that house prices have bottomed - and predicts things will actually get worse going forward.
“With the economy set for a deep recession and unemployment rising steeply, we expect the sharper downturn trend in house prices of recent months to reassert itself,” Shah warns.