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House prices fall further in January
By Rebecca Atkinson
House prices dropped further in January, with a further 1.3% fall in values during the month, according to Nationwide.
The average property has now lost a record 16.6% over the past 12 months, and with the UK now in a recession and banks still restricting their lending, there is no sign the situation will improve anytime soon.
Martin Gahbauer, senior economist at Nationwide, says January's decline means the typical house is worth £150,501.
Nationwide also reports that the three-month rate of house price falls to January indicates a slight softening in falls, but Gahbauer warns that it is too early to say whether this marks the start of recovery.
However, Howard Archer of IHS Global Insight says the housing market still faces huge obstacles. He says: "Housing market and activity will be pressurised for some time to come by recession, sharply rising unemployment, waning income growth, ongoing very tight credit conditions, widespread belief that house prices will fall significantly further and an unwillingness of many people to commit to buying a house when the economic outlook and job prospects look so bad.
"On top of this, it is very difficult for many first-time buyers to find the larger deposits that are now widely required of them."
Others are more optimistic. The Royal Institute of Chartered Surveyors (RICS) recently reported a 17% increase in new buyer enquiries at the end of last year, as consumers went in search of bargain opportunities. And property website Globrix says it saw more searches in the first two weeks of January than during any full month in 2008.
But despite this evidence, activity levels remain "very low", says Nationwide - mainly as a result of the mortgage drought.
Gahbauer says: "Mortgages have become less widely available as a result of heightened economic risk, tighter lending criteria and a decline in the number of lenders who are active in the market."
But a lack of mortgage credit is not the only reason for diminished house sales. Gahbauer says higher buyer enquiries have not translated into higher approvals partly because the uncertain economic outlook continues to dampen consumer confidence. Meanwhile, high inflation continues to stretch household budgets while historically low interest rates eat into people's savings.
The Bank of England's base rate cuts, along with the Government's latest bail-out of the mortgage market, has yet to have a significant impact on lending. But Nationwide says that the increasing numbers of buyer enquiries suggest that activity levels have a "reasonable chance" of recovering once an end to the recession is in sight and/or Government interventions lead to an improvement in the availability of mortgages.
Gahbauer says: "While the [base] rate cuts have so far not had an immediate impact on economic output, this should come as no surprise. Historical experience suggests that interest rate cuts typically take 18-24 months to feed through into the wider economy, so it is certainly still too early to claim that they are having no effect."
Ed Stansfield, property economist at Capital Economics, says property is still overvalued and must come down - potentially by 35% below their October 2007 peak.
And despite reports of increased levels of buyer interest, Stansfield warns that prices are not about to stabilise.
"The rise in new buyer enquiries has yet to be replicated to other measures of housing market activity, while lenders are still reluctant to lend to any but the most credit worthy borrowers," he adds.
Archer, of IHS Global Insight, expects house prices to fall by a further 15% this year.
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