House prices tanking like it's 1992

More gloomy news from Nationwide: last month house prices suffered their biggest drop since records began...

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Last Updated: 31 Aug 2010

Nationwide said house prices dropped by 2.5% in May, the biggest monthly decline since its index started back in 1991, and the seventh consecutive monthly fall. And unfortunately this is no blip – prices are now 4.4% lower than this time last year (the biggest annual fall since 1992), having dropped nearly 3% in the last quarter. If things continue in this vein, chances are that we’re in line for a double-digit fall in 2008.

According to Fionnuala Earley, Nationwide’s unpronounceable chief economist: ‘The pace of house price falls accelerated in May as more weak economic news added to the gathering momentum of negative sentiment about the housing market.’ In other words, all the stories of doom and gloom about the economy – like this one, for example – are making things worse. Perhaps Nationwide should stop releasing monthly figures? Or at least make it a bit easier for us all to get a mortgage...

Earley think that all this bad news (including a drop in new mortgage approvals and declining consumer confidence) may yet persuade the Bank of England’s Monetary Policy Committee to bite the bullet and cut interest rates – but with inflation still hovering well above the Government’s benchmark 2% rate, this sounds extremely unlikely. Particularly after today’s CBI figures, which showed that last month high street prices increased at their fastest rate in 16 years (unsurprisingly, sales were also down).

Besides, a bit of perspective is required here (as always with these house price stories). Prices may be down year-on-year, but they’re still 5% higher than the previous year and 10% higher than the year before that. So for most homeowners, these modest falls will still be pretty insignificant compared to their overall gain. Earley reckons that we’re actually in better shape than before the last housing crash, for three reasons: fewer people bought at the top of the market, most put down a bigger deposit, and there aren’t as many interest-only deals – thus giving people a nice cushion against future falls. Sounds a bit like she’s ‘talking her book’, but you never know.

What’s more, there are plenty of people who will be delighted to see house prices come down – not least first time buyers, who might finally be able to afford to get on the property ladder. With prices at an all-time high relative to salaries, many think a correction is long overdue. Though their number probably doesn’t include those who snapped up a sumptuous new pad on a 125% mortgage last summer...

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