Nationwide reports that house prices are 6.3% lower than this time last year, but remain 4% higher than 2 years ago. House purchase transactions remain subdued across the UK. June prices are down by 0.9%, compared with a fall of 2.5% in May. The average house price is now £172,415, down from the May average of £173,583.
Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said: "The pace of house price falls slowed significantly in June. House prices fell by 0.9% during the month, less than half of the rate of the 2.5% fall recorded in May. Prices in June are now 6.3% lower than this time last year and have fallen 7.3% from their peak last October. The price of a typical house is now £172,415. This is over £13,500 less than it would have cost at the top of the market and over £11,500 less than this time last year. However, the strength of house price growth up until last year means that prices are still 4% higher than two years ago and 9% higher than three years ago.
"The level of transactions is a key driver of house prices. Changes in transaction levels are a good indication of the likely path of prices and across housing cycles have tended to lead changes in house prices by a few months. In the most recent cycle the number of house purchase approvals began to moderate in the first quarter of 2007, whereas annual house price growth did not begin to slow until the third quarter. The number of house purchase approvals per month is now at historic lows and in May was running at less than half of its long run average rate.
"However the overall level of house purchase approvals masks a number of things. Looking at the mix provides some interesting information. Data on regulated mortgages does not include buy-to-let loans, but interpolating this from CML's survey data shows that demand for house purchase from all sectors of the market has dropped off this year, but what is more interesting is which sectors of the market have been most affected.
"Perhaps surprisingly given the poor affordability conditions, first-time buyers activity as a proportion of overall house purchase completions has held up fairly well. First-time buyers accounted for about one third of house purchase transactions in the first quarter of the year, exactly in line with the average over the last three years. However, movers' activity fell back further. Movers accounted for about half of all house purchases in the first quarter, below the 55% average of the last three years. In contrast, estimates of buy-to let house purchase activity held up very well. These purchases accounted for about 19% of house purchase completions in the first quarter - significantly more than the average over the last three years of 14%.
"No regional buy-to-let data activity is available, but the relationship between house prices and regulated house purchase transactions also stands up when looking across the regions. Controlling for the different sizes of the regions by looking at the average turnover rate2 in the last year shows the relationship very clearly. Those regions with the highest turnover generally have had the most resilient house prices. London and the South East stand out from the trend with relatively higher turnover rates, but this is likely to be a reflection of the greater mobility of the population in these regions. However the comparison between the best and worst performing parts of the UK, Scotland and Northern Ireland, is very stark. Indeed, both of these regions also stand out at the extremes for currently being furthest above and below their average contribution to overall house purchase transactions in the UK over the last three years.
"With house purchase transactions so far below their long term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months. However, as prices continue to fall affordability measures become more favourable for those in a well financed position to be able to buy."
