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Fears grow as house prices dive 2.5% in May
Hugo Duncan, Evening Standard29.05.08
The housing market was today plunged into its biggest crisis since the crash of the early 1990s.
Building society Nationwide said house prices fell 2.5% in May - the largest monthly fall since it started taking figures in January 1991. It was the seventh monthly drop in a row, making it the longest consecutive period of decline since 1992. It left prices 4.4% lower than a year ago, the biggest annual fall since 1992.
Howard Archer, chief UK economist at Global Insight, said: "The plunge in house prices in May is a real shock, and will fuel concern that we are now headed for a sharp correction.
"The downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is increasingly biting. It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009.
"Clearly, a sharp housing-market correction would add to the already serious risks to economic growth, particularly through weighing down on consumer spending."
The average price of a house in Britain fell almost £5000 between April and May and £8000 over the year to £173,583, although homes in London cost nearer £300,000. But prices are still 5% higher than they were two years ago and 10% more than three years ago.
Nationwide chief economist Fionnuala Earley said Britain is "better-placed to weather the storm" than in the 1990s, as fewer homeowners bought at the top of the cycle and, even taking into account the recent borrowing binge, buyers typically put down a larger deposit than before the last crash.
But the mere mention of the crash of the 1990s and recession under the Tories will send shivers through Number 10 as Gordon Brown lurches from one crisis to the next. Mortgage lending has dried up as a result of the credit crunch, and first-time buyers are struggling to get on to the housing ladder despite the falling prices. Households are also feeling the pinch from rising energy bills and food and petrol prices as the cost of crude oil and other commodities soars.
Economists today warned there is little respite on the way, with the Bank of England reluctant to cut interest rates while inflation remains so far above the 2% target. The Bank's monetary policy committee has reduced rates from 5.75% to 5% since December but inflation is now running at 3% and threatens to rise towards 4% in the coming month as oil remains near record highs.
Earley said: "Falling house prices combined with higher inflation make the MPC's decision more difficult. Stronger-than-expected inflation appears to have shattered hopes of an early cut in the Bank rate in June, but more downbeat economic and housing-market data could lead more MPC members to vote for pre-emptive cuts."
The Nationwide figures follow a blizzard of weak news on the housing market, with everyone from rival lender Halifax to the Bank of England and Royal Institution of Chartered Surveyors reporting massive falls in mortgage lending and sales.
Reader views (6)
"Building society Nationwide said house prices fell 2.5% in May"
Hmmm, this would be the same Nationwide building society that has ramped it's own prices up through the roof, presumably to the extent that they are no longer taking on very few new mortgages? Hardly a fair market report is it, I would imagine the monthly Land Registry report would give a much better idea of the extent of the damage in England.
- Roger Misilli, Twickenham
An Englishman's home is his castle - doesn't that mean we should be able to own our homes.
Since the market went mad and the Government didn't increase Stamp duty in line with the market not only is too expensive for new buyers but it is also too expensive to move.
The market has gone mad so let the prices fall. People can then look forward to buy their own homes, afford a reasonable lifestyle (lower mortgages) without incurring swingeing government taxes.
- Grant Stretch, Guildford
'House prices trebled in ten years'. There was a time in those ten years that people did not move and added extensions etc. to their properties. Is it wonder that the price of houses increased as they have, or does all
improvements that were carried-out count for nothing?
- P C, Rainham. England.
Richard from Hackney, as a potential first-time buyer, you're not the only one to benefit from falling house prices. In fact, it's only speculators, banks, down-sizers and the government who actually gain from rising prices. Why falling prices are reported with such negativity is quite bizarre; it's become a part of the property-obsessed UK psyche. It's also a symptom of the ignorance and greed of people who think they're somehow richer when the 'value' of their property goes up. If, like me, you own a flat and want to up-size to a house, rising prices make it a lot more expensive. Falling prices would actually help me.
Now lending criteria have tightened (back to normal levels, I might add) we will see further falls in prices (I estimate 40% nominal falls by 2011) and perhaps a more sensible, sustainable market for all.
- Red, London, UK
"Fears grow..." What fears?
House prices have TREBLED, yes TREBLED, in 10 years. Now they drop a few percent, and "fears grow".
So they will drop to a level that makes them affordable?
I am sik of this all-pervasive greed that the housing market engenders in people. If only prices grew at a reasonable rate each year, instead of these speculative gains that have caused homeowners to wet themselves in delight and forget about those who have been left behind. Greed, greed, greed.
- Dave Markham, London
Fears growing? Not for me. I'm just waiting to get on the property ladder, so falling house prices are manna from heaven.
- Richard, Hackney, London
