Page last updated at 09:08 GMT, Tuesday, 6 January 2009

House prices 'fell 15.9% in 2008'

Woman looks in estate agent's window
Prices and sales are likely to keep on falling

House prices fell by 15.9% last year, according to the latest survey by the Nationwide building society.

It says prices fell by another 2.5% in December taking the average house price down to 153,048 - 29,000 less than a year ago.

The building society says that as prices have now fallen for 14 months in a row they are 18% lower than their peak in October 2007.

The Nationwide's chief economist said last year was a "year of turmoil".

Finnoula Earley foresees bumpy times during 2009

"The disruption in the financial markets worsened throughout 2008 and had larger implications for the real economy than we anticipated a year ago," said Fionnuala Earley.

"We did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown," she added.

Downturn

The Nationwide's survey confirms last week's report from the Halifax which also said that prices had dropped by 16% in 2008.

House price graph

Last year saw the biggest annual house price drop on record, which was prompted by a sharp fall in the availability of mortgage funds from lenders who had been hit by the international credit crunch.

This led to a sudden drop of in demand from buyers at a time when house prices had already reached record levels, as a result of which sales are currently down by 60%.

With mortgage approvals suffering an even bigger fall, sales and prices are expected to continue to drop for the time being.

"Prices have further to fall before significant numbers of buyers will be willing to return to the market," said Ms Earley.

Recession

Ms Earley warned that the developing economic recession would drag the housing market down further.

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"Until the economy and the labour market stabilise, it is hard to imagine households becoming upbeat about the immediate future for house prices and this will hinder the pace of recovery," she said.

"In addition, the wider economic recession also impacts negatively on household expectations of future incomes."

The Royal Institution of Chartered Surveyors, (Rics) added to its voice to the calls for government action to reinvigorate mortgage lending.

"I think to secure an improvement in transaction activity what we will need to see is some measures taken to increase the supply of mortgage finance," said Simon Rubinsohn, the Rics chief economist.

Regional changes

The biggest fall in house prices last year was in Northern Ireland where prices dropped by 34.2%, partly reversing the huge house price boom seen in the previous few years.

In Scotland however, prices were much more resilient, falling by only 8.1%.

Elsewhere in England and Wales the drop in prices was more uniform, ranging from 11% in Northern England to 16.6% in East Anglia.

Prices are still highest in London where they average 257,963.

"The ongoing deep problems of the housing market maintains pressure on the Bank of England to deliver another deep interest rate cut on Thursday," said Howard Archer, chief economist at IHS Global Insight.

"Although mortgage lenders are likely to be increasingly unwilling to pass on much of any further interest rate cuts," he added.

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