FTAdviser.com

House prices suffer record fall, but may be stabilising

Story by: Sharon Flaherty
Magazine: FTAdviser
Published Thursday , October 02, 2008

The annual rate at which house prices are falling increased to 12.4 per cent over the last month, to reach the largest ever annual decline on record.

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A 1.7 per cent fall in house prices in September pushed the annual rate of decline up from 10.5 per cent in August to 12.4 per cent in September - well above the previous highest annual rate of decline of 10.7 per cent recording in the 1990s.

The drop pushed the average cost of a home down to £161,797 in September.

However, it is not all doom and gloom, with Nationwide claiming that house prices are beginning to show a pattern of stabilisation.

Nationwide said that while house prices have fallen for 11 consecutive months, the monthly rate of fall has been almost unchanged in the last three months.

Chief economist Fionnuala Earley said this may be a sign of some stabilisation in the pace of house price falls.

"The less volatile three-month on three-month series has also barely changed for the last three months, after accelerating in the first half of the year. This may suggest the beginning of some stabilisation in the pace of house price falls," she said.

According to Earley, although the long-run trend in growth in real house prices in the UK is around 2.7 per cent per annum, the current market conditions in the housing market are not likely to change quickly.

"With the economy now beginning to contract and expected to remain at sub-trend growth into 2010 there is little to suggest that the market will turn around quickly.

"Although the next year or two will be difficult, over time the global economy will recover from current difficulties, helping to end the cyclical downturn in property markets," she added.

Meanwhile, house price falls continue to differ across different regions in the UK.

In Scotland, prices fell by a seasonally adjusted 5.0 per cent in July-September, worse than the UK average of 4.6 per cent. This decline left prices in Scotland 7.1 per cent lower than in the third quarter of 2007.

Wales saw a quarter-on-quarter fall in prices of 1.9 per cent in July-September.

"This was the smallest fall among all UK regions and left the annual rate of change at -9.2 per cent, slightly better than the UK average," added Earley.