House price correction gathers pace
House prices fall 6.1%
Thursday, 10 Jul 2008 10:12
House prices fell 6.1 per cent over last year – with prices falling two per cent fall over the last month alone.
However, this is a slower pace of decline than the 2.5 per cent drop seen in May, the Halifax house price index shows.
House prices are now at the same level recorded in August 2006, yet they remain slightly higher (two per cent) than two years' ago, more than ten per cent higher than in June 2005 and almost 40 per cent above that in June 2003.
According to Halifax, the average price of a property is now £180,344.
Despite recent falls, however, there is presently no need for concern argues Halifax.
Prices have increased 196 per cent since the trough of the 1990s slump – increasing for 48 consecutive quarters since 1995.
"A strong labour market, low interest rates and a shortage of new houses underpin housing valuations," argues Halifax chief economist, Martin Ellis.
"Our research shows that the labour market is the key driver of the housing market. Employment is at a record high."
A record 29.55 million people are presently in employment, finds the Office for National Statistics (ONS). Total employment increased by 76,000 over the three months to April, compared with the previous quarter and by 446,000 over the past year.
Despite this prices are still falling, prompted by a variety of reasons.
Spending power is presently under pressure, affordability difficulties abound due to the rapid rise in house prices in the last few years and the decline in credit availability resulting from the crisis in the financial markets is also taking a toll.
Coupled to this there has been a slight fall in real earnings over the past year.
Average earnings rose by 3.8 per cent in the year to April compared to a 4.2 per cent increase in the headline rate of retail price inflation over the same period.
Significant increases in both fuel (12 per cent) and food prices (eight per cent) over the past year have helped to reduce the discretionary income available to households to fund house purchase.
Halifax presently expects prices to fall by nine per cent by the end of the year.
Chris O'Toole