House prices fell by 1.3% in April, according to the latest Halifax House Price Index. Prices are also reported to be 0.9% lower on an annual basis. The Average House Price is now £189,027.
The decline in prices is driven by a squeeze on spending power and the rapid rise in house prices in the last few years. These factors have curbed housing demand. The rise in interest rates between August 2006 and July 2007 has increased average mortgage costs.
There has been a modest decline in 'real' earnings over the past year. Average earnings rose by 3.7% in the year to February, below the 4.1% increase in the headline rate of retail price inflation over the same period. Sharp increases in both fuel (4%) and food prices (6%) over the past year have helped to reduce the discretionary income available to households to fund house purchase.
Commenting, Martin Ellis, chief economist, said: "House prices fell by 1.3% in April. We expect a mid single digit percentage decline in UK house prices this year. There will be regional variations, however. Some areas of the country are likely to record modest price rises whilst other parts are expected to see falls above the national average. Price falls should be viewed in the context of the substantial price rises over recent years. UK prices nearly trebled 190% over the ten years to August 2007. A growing economy, high employment levels, low interest rates and a shortage of new homes underpin housing valuations."
Completed property sales in March were down 20% on an annual basis. The number of new buyers interested in home purchase fell for the sixteenth successive month in March, highlighting the decline in housing demand (source: RICS). The number of mortgages approved to finance house purchase - a good leading indicator of house sales - in Q1 2008 was 41% lower than a year earlier. A growing economy, high employment levels, low interest rates and a shortage of new homes underpin housing valuations. The economy expanded at an annual rate of 2.5% in 2008 Q1; in line with the UK's long-term average. The quarterly rate of growth, however, did slow from 0.6% in 2007 Q4 to 0.4% in 2008 Q1.
