House prices still on the slide

House prices fell again in January, according to Nationwide. But is the recent decline bottoming out?

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Last Updated: 31 Aug 2010

The UK-based mortgage lender said in its latest report that house prices fell in January for the third month in a row. Cue more doom and gloom in the media about the misery that awaits all homeowners in 2008.

However, the 'decline' was actually pretty minuscule – a paltry 0.1%, taking the average house price to £180,473. And that’s still over £7,000 higher than last year, a 4.2% increase – less than the 4.8% comparative figure in December, but still not to be sniffed at.

Clearly the impact of the credit market turmoil has hit homeowners where it hurts – according to Nationwide, the last three months have seen prices fall by 0.3% compared to the previous three months (this time last month, the figure showed a gain of 0.9%). Prices are currently growing at their slowest annual rate since the back end of 2005.

But this is hardly comparable to the crash of the early 1990s, when interest rates were going through the roof. In fact, Nationwide's Senior Economist Martin Gahbauer reckons he can see some 'tentative signs' that the demand may be starting to bottom out. According to the Royal Institution of Chartered Surveyors, the number of new buyer enquiries at estate agents has apparently been falling steadily for 18 months, as soaring prices and high interest rates have made it harder for first-time buyers to get on the housing ladder. Now that prices are flattening out and interest rates look set to fall, they’re starting to sniff around again – new buyer enquiries apparently saw a modest increase in the last quarter of 2007. If this ‘pent-up demand’ translates into a few house purchases in the coming months, the market could pick up again before we know it.

Gahbauer is even pretty relaxed about buy-to-let investors, who have been widely expected to bear the brunt of the market slowdown. His view is that the recent market woes will only really impact those with a short-term investment horizon, whereas in fact: ‘many [buy-to-let] investors are motivated by longer-term retirement planning rather than the expectation of making a quick gain. If true, there are reasons to be more sanguine about buy-to-let than suggested by recent headlines,’ he said chirpily.

So no need to panic just yet...

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