Halifax, the UK’s largest mortgage lender, gave us a nasty shock this morning with news that UK house prices fell 2.5% in March – the biggest monthly drop since September 1992, when John Major was forced to withdraw the pound from the ERM and interest rates were at nearly 10%. It means prices fell 1.1% in the first quarter of 2008 to an average of £191,556 – just 1.1% higher than this time last year.
As a result of this precipitous fall (which was worse than everyone expected), the Halifax reckons that prices will actually fall over the current year – contrary to its previous predictions. It’s now singing a similar tune to Nationwide, which was similarly pessimistic in its most recent update earlier this month (remarkable - two house price surveys actually agreeing with each other).
But before we all start crying into our cappuccinos, it’s not all doom and gloom. Halifax chief economist Martin Ellis (who’s managed to stay relatively upbeat on the market – though perhaps he’d get in trouble with the top brass if he didn’t) points out that we need to see this very slight decline in the context of the massive price hikes the UK has experienced in recent years. Given that prices have jumped 171% in the last decade, a single-digit drop is relatively small potatoes (although that’s not much consolation to those who have just mortgaged themselves to the hilt).
What’s more, he says, the economic fundamentals are still pretty good – unemployment is low (for now), interest rates are falling and there is still a shortage of decent housing in many areas. In fact, a closer look at the figures reveals that several regions actually enjoyed modest price rises in the first quarter – notably East Midlands, up 2.2%, and Greater London, up 1.6%. So it doesn’t sound much like Armageddon to us.
The most immediate consequence could be another interest rate cut when the Bank of England’s Monetary Policy Committee has its latest monthly tea and biscuits on Thursday. But even if the MPC does lop off a quarter point (and ignores its previous worries about inflation) it’s unlikely to do us much good anyway – with the money markets still gummed up, we’re unlikely to see the banks cutting their proffered interest rates any time soon.
Still, not quite Black Tuesday, it would seem. Perhaps just a Very Light Shade of Grey...