Property price falls in UK inevitable despite today’s figures showing they increased in September

The average price of a home is now £166,757, leaving the annual rate of house price inflation at 3.1%, down from 3.9% in August and 6.6% in July, the Nationwide index shows.
 
There was a marked regional variation in house price trends over the third quarter. Prices in London and southeast England rose by 0.4% and 0.2%, while Scottish house prices fell 3.4% and those in Yorkshire and Humberside in northern England dropped 2.7%.
 
But a comparison of the last three months with the same period last year, regarded as a more accurate indication of house price movement, turned negative for the first time since May 2009, falling from 0% in August to -0.9% in September.
 
According to Martin Gahbauer, chief economist at the Nationwide the figures show that the UK residential real estate market is entering a period of stagnation and he does not rule out price falls.
 
He described the figures as being consistent with the clear loosening of housing market conditions observed over the summer months’. And although prices are widely expected to fall towards the end of the year there is unlikely to be a huge downturn in the market.
 
‘Although the three month rate of change has turned negative, at this stage it is not pointing to a significant pace of decline in property values. During the 2008 downturn in house prices, the three month rate of change dropped as low as -5.1%, well below the current level. Nonetheless, buyers appear to have a slightly better hand than sellers at the moment, as the market continues to absorb the recent increase in property for sale,’ he explained.
 
Gahbauer said the future direction of house prices would depend on whether the strong flow of new properties being put up for sale continued into the autumn and on the extent to which sellers were prepared to compromise on asking prices to make a quicker sale.
 
‘Many of the new sellers who have marketed their properties may indeed be speculative sellers testing the market in response to the price gains seen since early 2009 and the abolition of home information packs. If this is the case, and there is little urgency to sell for financial or other reasons, then prices may remain more or less stable, albeit at the expense of market activity,’ he said.
 
Most house price surveys have shown a levelling off of price rises this summer. Many analysts say there needs to be a considerable increase in lending for there to be a proper recovery in the property market. Mortgage approvals last month fell to their lowest since February according to Bank of England data published this week.
 
According to Nick Hopkinson, director at Property Portfolio Rescue, it seems almost inevitable that house prices will fall over the next few months. ‘Overall mortgage lending continues to fall according to all the recent analysis and reports. Going forward, none of the main lending banks look likely to increase their appetite to lend as they start to face up to repaying or at least re-negotiating many billions of debt themselves in the next year,’ he said.