What next for house prices?
Prices fell by a record amount in August, prompting fears of a crash.
By Kara Gammell
Published: 5:31PM BST 08 Oct 2010
Just when many families were digesting the news that they were to lose child benefit, have to work longer and pay more into their pensions, they were delivered the bombshell that house prices fell by a record amount.
Last month, more than £6,000 was wiped off the value of the average property as house prices dropped from £168,124 in August to £162,092, the biggest fall since 1983. A rise in the supply of property and a drop in demand fuelled by economic uncertainty pushed prices down 3.6pc.
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So what next? Is this the start of a sustained fall in house prices? Here's what the housing experts have to say.
Martin Gahbauer, chief economist, Nationwide
"Although the Halifax index showed a large drop in September, the less volatile three-month on three-month measure showed a drop of 0.9pc, the same as in the Nationwide index. This compares with three-month on three-month declines of more than 5pc in the deepest phase of the 2008 downturn in both indices. As such, the current declines are still on the modest side. None the less, market conditions have clearly loosened as more sellers have marketed their properties and buyer demand has remained weak. This may exert additional downward pressure on house prices in coming months. At this stage there is limited evidence of widespread distressed selling. Without more of this, price declines of the magnitude in 2008 are unlikely."
Paul Diggle, property economist, Capital Economics
"The hefty drop in the Halifax measure of house prices adds weight to the view that house price weakness is far from over. To our minds, weak housing-market activity indicators mean that further falls in house prices are likely. There is no doubt that this will reduce the amount of equity in people's homes, making it even harder to remortgage."
Martin Ellis, housing economist, Halifax
"Last year, a shortage of properties for sale contributed to an imbalance between supply and demand, a key factor in pushing up house prices. More recently, more properties have come on to the market and reduced this imbalance. Plus, renewed uncertainty about the economy and jobs has caused consumer confidence to falter, dampening demand for home purchases. The factors have been exerting downward pressure on prices.
"In addition, volatility of the month-on-month measure has increased due to low transaction levels across the market; to get the best view of the underlying trend we should look to the quarterly figure – which shows a 0.9pc decrease.
"It is far too early to suggest that this is the beginning of sustained falls. House prices in the third quarter of 2010 were 0.9pc lower than in the second quarter of 2010. The rate of decline is slower than 2008, when it was consistently in excess of minus 5pc and minus 6pc throughout the second half of the year.''
Howard Archer, chief UK and European economist, Global Insight
"While a drop in house prices always seemed probable in September, after Halifax had reported price rises in August and July that conflicted with other surveys, a plunge of 3.6pc month-on-month was off everybody's radar.
"It is important to put the data into perspective. The Halifax data highlights how volatile housing market data can be on a month-to-month basis and from survey to survey. The 3.6pc plunge reported by the Halifax is partly a correction to the rises reported in August and July, which conflicted with other data and surveys.''
PHILIP SHAW, ECONOMIST, INVESTEC SECURITIES
"It is difficult to know how literally to take the Halifax number – it implies that the housing market has fallen off a cliff. Taking September's figure on its own implies that house prices are now 0.7pc below those a year ago. By contrast, the Nationwide estimates house prices are 3pc above 12 months ago.
"If it is right, one hopes that lower prices will help to attract first-time buyers. This would help to stimulate not just housing activity, but spending in the economy.
"The housing market is very nervous right now, but we will get further clues from the RICS survey this week. Don't forget that the market recovered abruptly in spring last year."
SIMON RUBINSOHN, CHIEF ECONOMIST, ROYAL INSTITUTION OF CHARTERED SURVEYORS
"We expect prices to slip a little further over the coming months, but believe the risk of large house price falls is relatively limited. Key RICS lead indicators measuring the gap between demand and supply suggest the gap is beginning to narrow, which points to a more stable picture for early 2011."
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8051488/What-next-for-house-prices.html
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