House prices fell by 0.5% in December, the second consecutive monthly decline, says the Nationwide Building Society. The average price of a UK property is still £8,334 higher than a year ago and interest rate cuts will help, but are unlikely to re-ignite the housing market as in 2005. The average house price is now £182,080, up 4.8% over the past year.
Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said: "UK house prices fell by a seasonally adjusted 0.5% in December, recording their second consecutive month- on-month fall. The annual rate of house price inflation fell to 4.8%, compared to 6.9% in November and 10.5% in December 2006. The average price of a UK property rose by £8,334 over the last 12 months, leaving it at £182,080 at the end of 2007. The three-month on three-month rate of growth - a smoother indicator of house price trends - fell from 1.4% in November to 0.9% in December, the lowest since November 2005.
"The housing market has weakened significantly in the closing months of 2007 after holding up more strongly than expected in the earlier part of the year. While we finish the year with house prices broadly in the range we had expected, the path to this point has been quite different to our expectations. Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year. However, the turmoil in the financial markets resulting from the US sub-prime mortgage issue and the problems experienced by a UK mortgage bank have swiftly added to the pace of changing sentiment in latter months.
"As funding conditions have tightened and risk aversion has risen amongst banks, there has been a decline in the availability of mortgages at the riskier end of the borrowing spectrum and an increase in their price. This will undoubtedly choke off new sub-prime lending in 2008, but may also make it more difficult and expensive for existing sub-prime borrowers to re-mortgage. By contrast, credit supply in the prime lending sector has still been largely unaffected. Nonetheless, a return of more normal trading conditions in the money markets will be important for the health of both the housing market and the wider economy in 2008. The co-ordinated response by the world's central banks has been a welcome development in this respect, helping to bring inter-bank rates down significantly from the peaks reached earlier in December. However, it is likely to take more clarity about the extent of losses in the US sub-prime mortgage sector for conditions to fully return to normal. The speed and extent of this normalisation process will be one of the main factors to watch in 2008."
