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House prices on course to fall by 12pc next year
Jonathan Prynn, Evening Standard5 Dec 2007
House prices have fallen for the third month in a row sparking fresh concerns about the state of the property market, Britain's biggest mortgage lender said today.
The Halifax said the 1.1 per cent drop last month marked the first time since early 1995 that prices had fallen for three straight months. It was the biggest monthly drop since last December, it added.
If the trend continues at the current level, prices will fall by more than 12 per cent in the coming year.
Halifax economist Martin Ellis stressed the British economy was in good shape, but added: "The increase in interest rates between July 2006 and July 2007 has taken effect.
"Higher mortgage repayments and falling real earnings have put pressure on households' income, resulting in a slowdown in both house price growth and activity."
Pressure is piling on the Bank of England to start cutting interest rates tomorrow to prevent the economy lurching towards recession next year.
The Bank's Monetary Policy Committee meets today to discuss its lending rate decision at noon tomorrow against one of the gloomiest economic backdrops for more than a decade.
One measure published today from mortgage lender Nationwide shows consumer confidence dropping faster than at any time since 2004.
It comes after a bleak warning from the Financial Services Authority that 1.4 million homeowners will struggle to refinance their mortgages next year because of the "very real prospect" that the global credit crunch will get worse. However, most economists in the City believe that the Bank will hold rates again at 5.75 per cent tomorrow because of fears about inflation, fuelled by record oil prices, leaping ahead of its two per cent target.
The first of several forecast cuts next year is expected in January, or more probably, February.
The high street is braced for a tough Christmas with worsening trading to follow in the New Year as consumers struggle to make credit card payments. Economic growth next year is now expected to slow from the near three per cent earlier forecast to little more than two per cent.
There are as yet no mainstream economists predicting a recession, but many fear that the risk is there for the first time in more than 15 years, particularly if the fallout from the US credit squeeze continues.
In the London money markets, one-month sterling interest rates for loans between banks rose to a nine-year high yesterday, an indicator of how alarmed the banks are about lending.
But Clive Briault, the head of retail markets at the FSA, said yesterday that banks should "assume that market conditions will remain very difficult for a sustained period".
He urged them to ensure that they had adequate levels of liquidity, despite the higher costs involved at present. "It would be prudent to pay a correspondingly high price - and to forgo some profits - to secure this protection, or otherwise to scale back balance-sheet growth," he said.
Reader views (4)
China has started to export inflation rather than deflation. Commodity prices are at record levels. Without the boost to margins from, cost cutting (they have done that as far as they could), outsourcing and China, companies will start raising prices at the factory gate (until now they managed to offset rising commodity prices by becoming leaner and outsourcing). This means they have started and will continue to raise goods prices so goods deflation will no longer offset services inflation (the largest part of our inflation basket). This is all on top of inflation (as measured as the cost of living for the average worker is far higher than the official statistics) because I doubt if improvements in quality and cheaper prices for electronics really has offset the continued rise in transport costs, council tax, rents etc.
Canada cut rates because its currency has strengthened significantly as a commodity exporter. We do not have that benefit. Therefore we can now have imported inflation as well. I am not sure how the cut will help the credit markets and how it has been factored in by them. Given rates were meant to go to 6% by now, to remain at 5.75% has been equivalent to a cut. Given that this interest rate decision does not seem to reflect a focus on inflation, I can only assume our independent central bank has been forced by the government, banks and estate agents. Agents seem to be saying the fall in house prices is to do with interest rates rising. But the same people said that current rates were low (look at press releases from BLT focussed mortgage lenders even now) enough i.e. the housing shortage would prevent a fall. No one has left the country, yet they want a cut in rates (implicitly accepting it was all liquidity driven!).
- Raj, London, 06/12/2007 12:51
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The concerns should be that the unsustainable property bubble has remained inflated for so long. If we are seeing the start of 40% fall predicted by the IMF and others that is a good thing. The only people who sensibly don't want property prices to fall are the investors looking to make a quick profit off the backs of the rest of us.
- Clive, Chichester, UK, 06/12/2007 11:26
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All developped countries are heading for a house price crash! Here in France, price have gone up 200% over the last decade, and it is no longer sustainable compared to the revenues of inhabitants. What with the credit crunch, the subprime crisis, the loads of house for sale and the press realease piling up that prices in UK and USA are down, I cannot see where price can go, except down.
- Malingrey Pierre, Nancy, France, 06/12/2007 10:55
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Red tape, Increased stamp duty rates, HIPS and increased taxes on everything, bad economy etc. does not help. I guess Nu Labor should get the message!
- Jacqueline, Hampstead, London, 05/12/2007 18:12
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