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).
The Bank of England is widely expected to cut rates again next week, particularly after the US Federal Reserve lopped off another 0.5% yesterday. A half-point cut is considered most likely, but some think a more aggressive approach is in order – including at least one member of the MPC. Arch-dove David Blanchflower has been voting for cuts for months, and last night attacked his colleagues for not seeing the light earlier. Rapid action was now required, he insisted: ‘If rates are not cut aggressively we do face the prospect of a relatively deep and long-lasting recession,’ he I-told-you-soed.
Somehow we doubt he’s the most popular man on the MPC – but he may be a lot harder to ignore now...
In today's bulletin:
Rate cuts loom as house prices sink 15%
Voser in as Shell makes record profits
Unilever shrugs off downturn worries
EIB offers extra £4bn for small business
MT's Little Ray of Sunshine: A healthy economy