UK house prices down 15.9%

Source : Business Times - 7 Jan 2009

December’s fall steepest in 56 years, driven by global credit crunch, economic downturn

British house prices fell by their biggest annual amount in at least 56 years during 2008 as credit seized up and incentives to enter the market evaporated amid sliding home values, a leading mortgage lender said yesterday.

The Nationwide building society said house prices fell 15.9 per cent in December from a year earlier, the biggest annual fall since it started compiling statistics in 1952. ‘2008 has been a year of turmoil in the British housing market,’ said Fionnuala Earley, Nationwide’s chief economist. Prices fell 2.5 per cent in December from the previous month, much more than the 0.4 per cent decline recorded in November, and the biggest one-month drop since May’s 2.6 per cent drop.

Despite the historic declines recorded in 2008, the Nationwide did point to one ray of light in the data gloom. It noted that the three-month rate, which smooths out more volatile monthly numbers, showed only a 4.2 per cent decline, the lowest since May. Nevertheless, Ms Earley said the length and depth of the recession in the wider economy is so uncertain that it makes no sense to produce a meaningful forecast for house prices.

‘Conditions remain highly volatile going into 2009, making it more difficult than usual to arrive at a specific forecast for house prices. In these unsettled times a forecast subject to frequent change could itself add to greater uncertainty,’ she added. The last time Nationwide did not issue a full-year forecast was in 1993 when the British housing market last crashed.

Most economists doubt that 2009 will be any better, primarily because house prices continue to look expensive on affordability measures and the ongoing drying up of credit.

Moreover, with the economy set to contract by up to 3 per cent, according to some forecasts, and unemployment heading towards 3 million, the downward pressure on house prices will likely remain. ‘The upshot is that we expect house prices to fall by 20 per cent in 2009,’ said Seema Shah, economist at Capital Economics.