November saw house prices fall by as much as 1.1% according to the Halifax, leaving the annual rate of house price inflation at 6.3% down from a high of 11.45 in August. This is the third fall in as many months, indicating that a slowdown in the housing market is continuing.
This is the first time in 12 years Halifax has recorded falls in three consecutive months, with the latest sharp drop following falls of 0.5% in October and 0.6% in September.
‘The housing market has slowed in recent months as the increase in interest rates between July 2006 and July 2007 has taken effect,’ said Martin Ellis Halifax chief economist. ‘Higher mortgage repayments and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity.’
However the report also stressed that on the back of the UK’s longest ever running period of unbroken GDP growth and record employment levels, the housing market still has a very solid foundation.
Mortgage approvals were down 12% in November, and completed sales were also down 15% year-on-year, but supply shortages should continue to support house prices, the report states; this new data also adds to the evidence in favour of an interest rate cut this week, which could give the market some breathing space.
Economists are watching carefully, and unwilling to predict what will happen in the next few months, although forecasts for next year’s growth are for the most part looking flat: ‘Of course, we cannot rule out a rebound in house prices at some stage over the next few months. But the bottom line is that evidence of a housing market correction is rapidly mounting. And while the direction of our forecast is firmly on track, given that they have already fallen by 2.3% over the past three months, our prediction for house prices to fall by 3% in 2008 is beginning to look too conservative,’ said Seema Shah from Capital Economics.