Halifax says UK property prices fell last month

UK residential property prices fell 0.9% last month and fell at their fastest annual rate for 16 months as faltering demand continues to put downward pressure on the real estate market, according to the latest index, published today (Friday March 04).

The Halifax index shows that prices were 0.4% lower in the three months to February and on an annual basis have fallen 2.8%m making the average house price now £162,867.

But the index flies in the face of two other reports from earlier this week showing that property prices in the UK have edged upward in both January and February.

The January data from the Land Registry’s flagship House Price Index shows that prices increased 0.2% from December and the February index from the Nationwide Building Society shows that prices in the UK increased by 0.3% and are now just 0.1% lower than a year ago.

Halifax said that with prices 2.8% lower than a year ago as measured by the average for the three months to February against the same period a year earlier, this is the biggest annual decline since October 2009 and sales remain low.

Also the number of mortgages approved to finance house purchase, a leading indicator of completed house sales, increased by 7% between December and January on a seasonally adjusted basis, according to Bank of England industry wide figures. Despite this increase, approvals remain historically low with the total number in the three months to January being 4% lower than in the preceding three months.

The decline in properties coming onto the market continues. The latest Royal Institution of Chartered Surveyors survey showed a reduction in new seller instructions for the fourth successive month in January. This trend, if sustained, should improve the balance between demand and supply and help to prevent a more significant fall in house prices.

'There has, however, been little change in house prices over the first two months of 2011 as a whole.  February's monthly decline of 0.9% offset January’s 0.8% gain. Overall, we expect a modest 2% decrease in house prices in 2011. Uncertainty over the economic outlook is likely to weigh down on housing demand this year,’ said Martin Ellis, housing economist at the Halifax.

‘Fewer properties have been coming onto the market in recent months. This trend, if sustained, should improve the balance between demand and supply and help to prevent a more significant fall in house prices,’ he added.

Most economists reckon house prices will fall this year as tight credit conditions and a weak economic recovery deter homebuyers. Howard Archer, economist at IHS Global Insight expects house prices to fall by around 5% in 2011 and ultimately decline by around 10% from their 2010 levels.

'It is clear that critical to the development of house prices over the coming months will be the amount of houses coming on to the market, mortgage availability, how well the economy and jobs hold up as the fiscal squeeze increasingly kicks in, and what happens with interest rates,’ he said.

Paul Hunt, managing director of Phoebus Software said that although these figures show house price growth has been flat since the beginning of the year, given that the Halifax index is compiled through the number of approvals it makes, the sample size may be partly to blame for this volatility.

‘The valuable message from this index is that sustained growth is unlikely to return to the wider market until mortgage lending picks up. While most house price indexes showed small price increases last month, this will not become sustained growth until doubts about rising inflation and unemployment are lifted from lenders’ minds,’ he explained.

‘While I am sceptical that prices have been moving as much as Halifax suggest, it’s worth remembering that market activity remains subdued and this will keep a check on prices as the year goes on,’ he added.