Are house prices falling?

Nationwide says there was a 0.1% drop in house prices last month, but it's unlikely to be the start of a trend.

by Adam Gale
Last Updated: 17 Dec 2015

There may not be a much safer long-term investment than bricks and mortar, but that’s little consolation to those who bought a house last year hoping for another 12% annual rise in its value. According to Nationwide, prices actually fell 0.1% from January to February, meaning property values rose 5.7% over the last 12 months.

House prices boomed between the summers of 2013 and 2014, before slowing in September last year. Despite hopes that modest growth might return, following monthly growth of between 0.2% and 0.5% from October to January, prices appear subdued again.

It isn’t the same everywhere, of course. London prices fell 0.2% in January, according to data from the slow but reliable Land Registry, although that still leaves the average price in the capital (£458,283) over four and a half times the average in the North-east (£97,974). Also, for once, London isn’t actually at the extremes compared to the regions, with values in Yorkshire and the Humber falling 1.5% and those in the North-west rising 2.6%.

Nationwide chief economist Robert Gardner says the overall fall is despite low mortgage rates, renewed earnings growth and dropping unemployment contributing to a ‘supportive’ economic backdrop. ‘It remains too early to determine whether this marks a turning point in activity’, he said.

The stagnation could owe something to the difficulties first time buyers are facing. According to Nationwide data, the average house is 15.6% more expensive than it was two years ago, at £187,964. Such rises are pricing young people out of the market, with only 36% of 25-34 year-olds owning property in 2014, compared to 56% in 2004.

Not everyone, then, will be concerned at a 0.1% drop in prices. Significantly, the government has proposed waiving local authority fees on brown-field sites to produce a 20% ‘discount’ for first time buyers under 40.

Not to be outdone (anyone would think there was an election coming), Labour has promised to make sure 200,000 homes are built every year by 2020. Either way, as the cooling effect of the stricter mortgage rules enacted last summer showed, policies can make a difference to prices.

More houses or discounts could ease price pressure at the cheaper end of the market, further bringing down the average, but would also allow new players onto the housing ladder, which could send prices up long term.

In the shorter term, however, the chances are that the natural cycle of the housing and construction industries will bring prices up rather than let them drop, especially given the relative health of the economy.

Compared to housebuyers, housebuilders are sluggish creatures, only able to respond to changes in prices over a period of months. As a result, it’s taken a while for the number of new builds to decrease after the bubble deflated last year, but decrease they have.

According to ONS figures, new home construction in the last three months of 2014 was down 0.2% on the previous quarter, when it had increased by 6.1%. Before too long, this will probably start to put some gentle upwards pressure on prices. Which is good. Or bad, depending on who you are.

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