Remember this gradient? We may be headed for a home-grown variant.
Nationwide’s latest house price data revealed the largest monthly drop in the survey’s 17-year history, and marked the seventh successive monthly fall in house prices.
The drop-off means that house prices fell at an annual rate of 4.4 per cent in the month of May, down from a fall of 1 per cent in April.
We have not yet hit a record annual rate of decline - but we’re not far off. The biggest annual fall in house prices was logged back in December 1992 when prices slid by 6.3 per cent.
The plunge in May is a real shock, says Howard Archer, chief economist at Global Insight, and will fuel concerns that the UK, like the US is headed for a sharp correction in house prices:
Global Insight’s latest forecast is for house prices to fall by 7% in 2008 and 9% in 2009. However, it now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009, given serious buyer affordability constraints, limited and often more expensive mortgages available due to ongoing tight lending conditions, a deteriorating economic outlook and reduced prospects for further interest rate cuts in the near term at least.
OK - we’re not yet in US territory, where an assumed 20 per cent fall in house prices would leave 16 million mortgages underwater, or almost a third of all homes mortgaged in the US.
Nationwide point out that the latest 4.4 per cent annual fall leaves house prices 5 per cent higher than in May 2006, and 10 per cent higher than in May 2005. They argue that turnover rates indicate that fewer homeowners bought at the top of the cycle this time, compared to the last downturn. Overall, borrowers have also put down a larger deposit than was the case in the 1980s, while demand for interest only mortgages has declined.
Says Archer:
… it must be borne in mind that current falling house prices follow an increase of 190% in average prices over the decade to August 2007 on the Halifax measure, so this should limit the number of people suffering from negative equity. Nevertheless, those people who took out 100% or even 100%+ mortgages within the last 18 months or so at the tail end of the housing market boom are particularly vulnerable.
More for the MPC to weigh up at its rate-setting meeting next week.
Related links
The latest Nationwide survey
UK house prices fall at record pace - FT.com
Case-Schiller cliff dive - FT Alphaville
Indepth: UK house prices - FT.com
