28th October 2010
According to the latest Nationwide survey of the market, prices over October eased 0.7%, having stayed flat in September. The slip has knocked £2,400 off the average cost of a house to £164,381. On an annualised basis, prices are now ahead just 1.4% versus 3.1% in September.
Particularly revealing is the rate of fall in prices. The three month versus three month rate of change, which Nationwide says is a smoother indicator of price trends, fell to – 1.5% in October from – 1% in September. (See chart below)
Nationwide adds that if the recent trend in house prices were to continue through November and December, the annual rate of house price inflation would drop to between 0% and -1% by the end of 2010. This would compare to a rate of +5.9% at the end of 2009.
Martin Gahbauer, Nationwide's chief economist says the latest survey broadly reveals "the continuation of the modest downward trend in house prices that began at the start of the summer".
There had been growing expectations of further quantitative easing by the Bank of England though yesterday's stronger than expected quarterly GDP figures has firmly put those expectations on the backburner for now. (See this MindfulMoney report on the GDP data)
Still, further easing sometime next year cannot be ruled out completely. Gahbauer believes further stimulus in the UK could have the impact of raising inflation expectations, which in turn could encourage investors to divert more money from cash holdings into property related assets.
He adds: ""The strength of these effects is very difficult to quantify, and it is impossible to say at this stage whether additional quantitative easing would fully offset the various headwinds currently facing the housing market, including the impact of the measures announced in the Comprehensive Spending Review. "
On balance, however, Gahbauer says it is "reasonable to expect that a resumption of quantitative easing would provide some offsetting support to the housing market".
There are growing worries that considering the downbeat outlook for the UK economy, certainly over the short to medium term that house prices, despite recent falls, are still defying gravity with the market yet to come to terms with the radically changed post credit-crunch climate. As Nationwide's report day shows the UK house price to earnings ratio remains well ahead of the long run average (see chart below).