The fall in house prices has begun to level out, according to the latest Nationwide monthly survey. But it remains unclear how soon the bottom of the market will be reached.
Nationwide's November survey of house prices show that prices fell by 0.4% in the month, an annualised rate of 13.9%. This is down from a rate of 14.6% in October. Over the course of the last year, an average price fell from about £185,000 to just under £160,000. But this is still about £25,000 higher than the market value of five years ago.
Fionnuala Earley, Nationwide's chief economist, warns: "In spite of the moderation in house price falls recorded in November, with the economy in recession, conditions do not appear very favourable for a swift recovery in the housing market. The labour market is weakening, which will inevitably hinder market demand, particularly when property remains expensive relative to earnings. With prices falling at their current rate there is also little incentive for new borrowers to hurry into the market. However, there are a number of measures which should provide some support to the market in general and help existing and potential homeowners in these difficult times."
In particular, Nationwide and other lenders are calling for further cuts to the Bank of England's base rate.
Bad news in the Pre-Budget Report
There was further gloom hidden away in the background papers of the Chancellor's Pre-Budget Report. "Prospects for the depth and duration of the adjustment in UK house prices are highly uncertain, with developments in global financial markets and the real economy key," said the Treasury's report. It added: "The average of new independent forecasts is for a fall of just over 20% in the two years to the end of 2009. Beyond 2009, as credit conditions normalise, house prices are expected to recover...."
This suggests that prices are likely to fall by more than another 5%. When house values are adjusted for average earnings the figure becomes even more stark. After adjustment for average earnings, using the Treasury analysis, house prices would fall back to their 2003 values in real terms at about the end of 2009.
Halt in construction
The slowdown has also now had a serious effect on the construction sector, with the latest monthly report on the construction sector from the Chartered Institute of Purchasing and Supply and Markit Economics showing that very little construction activity is now taking place. Paul Smith, senior economist at Markit, describes the figures in the construction sector as "appalling".
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, adds: "Housebuilding and commercial development have virtually ground to a halt and even infrastructure projects appear to be feeling the pain."
Some good news
Despite the gloom, there is some good news with further signs of realism amongst sellers leading to a resurgence of market activity. There are various reports that new homes, including apartments, are beginning to sell again, with vendors heavily discounting prices. Richard Cotton, divisional head of residential at the Cluttons estate agency, says that City workers are the most pragmatic and have sold homes to move into rented accommodation to increase their flexibility and reduce their debt burden.
"These sellers are realistic about pricing their home for a fast sale, at as much as 25% lower than the peak price of August 2007," says Cotton. "They are prepared to accept a lower price in order to shore up their finances, while the rest of the market is still waiting to see what happens."
Another agency specialising in prime London properties also reports that more people have become realistic about the property market. Knight Frank says that central London prices have fallen by 9.3% in the last three months alone, having previously fallen at rates below the UK average. It says that houses are now falling in value faster than apartments, but that the low value of sterling has stimulated increased interest from abroad in buying prime London properties.