House Prices On The Decline
December 2007 marked the beginning of the downward trend in property prices when the average house price fell by 0.4%. Despite slight price increases in 3 individual regions of England and Wales, the recent fall in overall UK property prices was said to be the first drop the Land Registry has actually recorded since August 2005. Economists have taken this decline to be a clear indication of a weakening within the property market.
The largest monthly price drop was recorded in the East Midlands where property values fell by 3.3%. On the contrary, the highest monthly price growth was seen in the north-east of England, rising by some 2.2%.
Is this decline set to continue? So far all the major house price indexes are showing a continuous slowdown in property.
According to data produced from the DCLG (Department of Communities and Local Government), November experienced a drop in prices by 0.8%. In addition, research from both the Halifax and Nationwide showed how the market continued to weaken in December while mortgage approval levels where at a 3 year low.
Figures provided by the Council of Mortgage Lenders show that gross lending for the month of December 2007 was down by some 25% from November, becoming the lowest monthly figure on record since May 2005. The ongoing problems within the credit markets are said to have had some impact on lenders' ability to advance money, causing limitations in lending criteria to new or existing customers.
Many analysts predict house inflation for 2008 to be largely flat and others believe that house prices will actually drop. The Centre for Economics and Business Research (CEBR) forecast the average property price in 2008 to drop by 2.5%, some £11,000.
However, with added pressure on the MPC to make further cuts in the interest rates, currently at 5.5% after a drop from 5.75% in December, the CEBR has stated that it expects house prices to recover next year 2009. Further interest rate cuts combined with supply shortages should see an end to the downward slope.
Despite the MPC holding the interest rate at 5.5% this January, economists stand firm that we will see a further reduction in the not too distant future.
Published on February 5, 2008
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