Rate cuts loom as house prices sink 15%

As one Bank of England insider suggests the MPC got it wrong, there's more grim news for homeowners...

Property prices are now 14.6% lower than this time last year, according to Nationwide, after another 1.4% fall in October. Although this was slightly smaller than recent months, it’s still the 12th consecutive monthly drop – since October last year, the average house price has now dropped nearly £30,000 to £158,872. Not surprisingly, this is due to dwindling sales, which Nationwide reckons are at their lowest level for nearly 35 years. But at least these gloomy figures make more interest rate cuts look increasingly inevitable...

There certainly wasn’t much cheer on display from the Nationwide today – it did point out that the average house price is still nearly 25% up on five years ago, but with house sales still tanking, there’s no end in sight for the current falls. Chief economist Fionnuala Earley says that the number of completed sales as a proportion of all mortgages has dropped to its lowest level since records began in 1974. Thanks to consumer jitters and restricted mortgage lending, it’s now taking people almost twice as long to sell a house as it did this time last year.

Earley points out that back in the 1990s (the last time volumes were anything like this bad). the general economic situation was a lot worse. And there’s clearly no shortage of properties to depress the market – quite the reverse, if anything. Since asking prices are declining at a slower rate than other measures, she reckons that many sellers have just not yet bowed to the inevitable and reduced their demands. This will change as the economy worsens, but in general terms, the ‘looming recession and continued financial market instability’ will slow down any market recovery, she says. The only plus point is that it should mean interest rates are ‘cut sharply’ (making mortgages cheaper).

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