UK house prices go into reverse

UK house prices fell by 0.6% in August from the previous month, says Halifax, the UK's biggest mortgage lender.

The fall was the first since August 2002. However, house prices are still 21.3% higher than a year ago.

The bank said it was becoming clear that five interest rate rises since last November had acted as a brake on the housing market.

On Wednesday, a survey from the Nationwide showed house prices rising at their slowest rate for three years.

"House prices have increased by 1.8% during the past three months," said Martin Ellis, chief economist at the Halifax.

When any market loses its new entrants you know the writing is on the wall Saxon Brettell, Cambridge Econometrics

"This is significantly below the 6.5% rise recorded in the preceding three months, providing further evidence that the housing market is slowing in response to the recent series of interest rate increases."

But the bank went on to argue that monthly falls were part of the "normal fluctuations" in the housing market.

'Overvalued'

The Halifax added that the market remains underpinned by a strong economy and historically low debt-servicing costs.

The average price of a property is just above the £160,000 mark, Halifax said.

Recent interest rate rises continue to take their toll on the housing market John Wriglesworth, Hometrack Are UK house prices closer to crashing?

Many economists have said that UK house prices have risen too high and a correction is inevitable.

"The indications are that the overvaluation in the market is being clawed back," Saxon Brettell, director of Cambridge Econometrics, told BBC News Online.

"Average house prices are too far ahead of incomes, that is why we have lost first-time buyers. When any market loses its new entrants you know the writing is on the wall."

However, Mr Brettell does not think a market crash similar to that of the early 1990s is on the cards.

"The market still has many things going for it and middle income groups seem quite resilient."

"Instead of a crash what we are likely to see is death by a thousand cuts, flat prices for a long period and transactions falling, allowing incomes to eventually catch up with house prices."

But Capital Economics said that its prediction of a 20% fall in UK prices, beginning in the second half of 2004, "remains on track".

The group noted a "striking" similarity between recent survey results and those that preceded the market crash of the early 1990s.

But the group added that there was a chance that the Halifax figures could reflect a traditional summer lull in house prices.

Rates on hold?

Lending figures released by the Bank of England on Tuesday support the view that the UK housing market is slowing.

Consumer debt rose by £10.4bn in July, but this was nearly a billion down on June's figure.

The main slowdown occurred in loans secured against homes, such as mortgages and re-mortgages.

In addition, the Bank's figures showed that the number of loans approved for house purchases fell from 112,000 in June to 97,000 in July.

The Bank's interest rate-setting committee meets next week to decide whether to lift rates again, although most analysts are expecting no change.

"With consumer spending also showing signs of moderating in July and August, there is a growing possibility that the Bank of England could leave interest rates unchanged through the rest of this year," said Howard Archer, economist at Global Insight.

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Your comments:

I sold to go into rented accommodation in March. Since then I have reviewed the local property paper weekly and it is clear sales are taking longer. Price reductions are also evident on family homes in the range £350K to £500K with "New price" quotes on the house ads in the paper.
Roger McEvoy, Warwick

I am selling at moment. We accepted an offer 10% lower than asking price after being on market for 3 months. I don't see big drops in London as any downturn in house purchase seems to be bringing up rental value so maintaining asset value of property. Folk still need somewhere to live and there isn't enough to go around.
Mark Hewis, London, UK

Where I live has seen some of the highest house price rises in the country over the last 12 months, and houses were sold within hours. There are also a lot of new builds still happening here with several builders here. The change in the last 8 weeks has been quite dramatic. A 4 bed house round the corner has been up for £299,000 for 2 months and this week the price has dropped to £268,000 and still no buyer. The new builds are now all offering incentives such as carpets, part exchange, pay the stamp duty etc, so they must now be struggling to sell. (It's nice to see these people having to now work to get their business rather than their previous attitude). I believe that a significant drop of 20%+ is on the cards over the next 12-18 months.
Iain, Ingleby Barwick, Cleveland

I own a home in Moseley, Birmingham. I bought it for £55,000 in 1997. In June 2004 I put it on the market for £175,000. To date the most I have been offered is £153,000. Buyers are definitely more cautious. There are three other similar properties for sale on my road - these are landlords trying to get out of the market asap. They too know the game is up. As I need to sell quickly I'll probably need to accept - indeed if interest rates continue to go up £153,000 may be a good deal after all.
K Kumar, Birmingham

Changes in the number of houses for sale are widely seen as a good 'leading indicator' of price-changes: in a boom-period there are more buyers than sellers, so the number of properties for sale diminishes, and in a 'bust' period sellers exceed the number of those willing to buy at current prices, so prices tend to fall, as seems already to be happening in many areas. I've been checking the numbers of houses for sale in several areas over recent months, and the change has been startling - much more, indeed, than a 20 per cent fall in sales seems able to explain. In the Yeovil area, the number of properties for sale has risen 75 per cent in the last 3-4 months, while in Oxford it has risen more than 150 per cent. This suggests that many investors and others have now decided to sell; and without a large increase in the number of buyers, the prices are bound to continue falling, prompting a further increase in the number of sellers. What the Bank of England is and should be watching, however, is not the level of house-prices but the level of borrowing: a substantial fall in house-prices now will be far better than an escalation of debt to levels that would result in a prolonged deflationary slump such as that experienced by Japan and other Asian countries.
David, Yeovil, Somerset, UK

My experience has been different: several properties that had been on the market for months in our locality have suddenly sprouted 'Sold' signs. A friend who bought a house on our street last month got into a bidding war and finally had to pay £ 5,000 over the asking price. I do not see any signs of an imminent crash!
Nandita Khanna, London, UK

As an estate agent I can confirm that the market has certainly changed, with sales in July and August below our seasonally adjusted expectations. As usual the Bank of England will have increased rates too high and will probably keep them there too long for the market to enjoy a soft landing. Remember the majority of house price indices reflect the historic trends rather than current ones. The rate rises have increased the base rate by a whopping 35% since last year and this has seriously affected affordability
Philip Mapletoft, Sheffield UK

I see no sign of a downturn here in Eastbourne. There are still houses with some crazy prices and SOLD signs.
Beruk Berhane, Eastbourne

Here's why I am convinced things aren't as good as they say. A year ago when I went to local estate agents they never called back. They were arrogant, rude and seemed to revel in taking packs of desperate people around dreadful flats to try and provoke a frenzy. Earlier this year they started to get more attentive. Now - all of a sudden - they can't be too helpful, constantly ringing up, offering to take me places and try and knock the seller down on the price. This is the key indicator for me.
Jeremy , Brighton, England

I have been monitoring house prices in a particular area of Surrey for several months. In the area in question, the average house price peaked in the middle of May. For the last 15 weeks the average price has been falling at a rate of about 1% per week.
Matthew, Surrey UK

Houses in my villiage are selling within days and prices are now out of control. I for one could not afford to live here at current prices which show no sign of slowing.
Andrew, Burnopfield Co Durham

I am a London-based developer. The house prices have dropped say 5% but importantly the number of houses being 'traded' and people moving up the ladder has gone down. I feel it levelled off in London around about the time of the Gulf War last year. What remains to be seen is whether there will be a dramatic downturn. Whilst the fundamentals and economy are fine, you have to factor in market confidence and the fact that a minor downturn could cause FTBs to sit tight and perpetuate a bigger swing than is expected.
Mike, London

All I see in my local area is house prices continuing to rise. Two flats in a beautiful Victorian house opposite me have both sold within three weeks of being on the market despite the refurbishment not being complete. After years of headlines about rising prices the media seems to be bored with it and is trying to talk house prices down - it simply isn't happening!
paul whittaker, Brockley, South East London

The market in Ipswich has changed dramatically over the past 2 months, there are now far more properties on the market and they are taking around 4 weeks longer to sell. An estate agent friend of mine told me yesterday that his clients are already having to make 10% reductions in the asking price in order to sell their houses. A 0.6% drop would appear to underestimate the drop in the housing market in Ipswich.
Dan, Ipswich