Bad weather reverses housing recovery

26 February 2010

House prices fell back in February for the first time in 10 months, as poor weather deterred would-be househunters.

Nationwide's latest monthly survey revealed that prices fell by 1% to £161,320 during the month following a 1.4% rise in January - the largest for five months.

Although economists warn that monthly figures are often volatile, they also point out that the three-month view shows that price increases have slowed significantly. This measure dropped to 1.6% for the three months to February, down from 2% in January and a peak of 3.7% in September.

The slowdown in house price inflation has been link to low levels of mortgage lending and the end of the temporary rise of the stamp duty threshold to £175,000 in January.

However, on an annual basis, prices actually climbed 9.2% in February from 8.6% in January, reflecting the fact that house prices fell by an even larger 1.5% in February 2009.

Economists now remain divided as to whether the dip marks the start of further woe for the housing market or is just a temporary blip.

Figures from the Council of Mortgage Lenders recently showed a 32% drop in gross lending for home loans in January. This hit a 10-year low at £9.1 billion. Meanwhile, cautious consumers on tight budgets and rising unemployment are also taking their toll.

Martin Gahbauer, chief economist for Nationwide, says: "Even without the impact of stamp duty changes and the snowy weather, it would have been surprising to see house prices maintain the very strong upward momentum seen for most of 2009."

Howard Archer, chief UK and European economist at IHS Global Insight, adds: "The dip in prices reported by the Nationwide following on from the British Bankers Association reporting a sharp drop in mortgage approvals for house purchases in January is supportive to our long-held view that house prices will suffer a significant correction in 2010 and will probably be no better than flat over the year.

"The fact of the matter is that the house prices rises that have been seen since early-2009 are out of kilter with the overall economic fundamentals," he concludes.



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