House prices fell by 0.7% in October
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Nationwide Building Society’s latest house price index shows that property values fell by 0.7% in October, with the average house price now standing at £164,381.
This is down from £166,757 in September and means that over the last three months values have declined by 1.5%, the largest decline over three months since April 2009.
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Martin Gahbauer, chief economist at Nationwide, says the three month decline is still well below the 5% to 6% rates of three month decline seen in the second half of 2008.
He says: “The annual rate of change – which compares the current level of house prices against their level 12 months ago – declined from +3.1% in September to +1.4% in October.
“If the recent trend in house prices were to continue through November and December, the annual rate of house price inflation would drop to between 0% and -1% by the end of 2010. This would compare to a rate of +5.9% at the end of 2009.”
But Capital Economics says that although, prices are still 1.4% higher than a year earlier, the annual rate of house price inflation now looks almost certain to turn negative in December, if not November.
Ed Stansfield, chief property economist at Capital Economics, says: “The fact that house prices now appear to be on their way back down after the past year’s rather unexpected surge should not be a surprise.
“Not only is the market overvalued on most measures, but house price falls are entirely consistent with the drop in buyer enquires and mortgage approvals that we have seen in recent months. They also square with reports that lenders have begun to tighten credit standards again.
“We believe that to put the market on a more sustainable footing, prices need to drop by around 20% from their latest peak.”
He adds that there is still considerable resistance to the idea that house prices might suffer from a double dip. But internationally over the last 40 years there have been at least seven double-dips in house prices in developed economies and in every case the second leg of the correction took prices to a new cyclical low.
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