The latest price drop published by Nationwide, the UK's biggest building society, means that the average price of a home has fallen by 17.6 % over the last 12 months.
'Sharp cuts in interest rates have helped affordability, but have not yet affected housing market confidence sufficiently to boost the levels of new transaction activity or slow the pace of house price falls, said Fionnuala Earley, Nationwide's Chief Economist.
'Early signs of increased interest in housing, as reported by the pick up in new buyer enquiries, have yet to filter into sales, but do suggest that falling prices and interest rates are raising curiosity now, which could flow through quickly once confidence returns,' she added.
Nationwide expect the Bank of England to cur base rates even further. Rate cuts to date have helped to reduce the cost of borrowing. 'Further cuts in rates will be welcome in the housing market, but the economic conditions that require them will mean that there is unlikely to be a swift turnaround in the housing market in 2009,' explained Earley.
Falling interest rates have reduced the mortgage costs of existing variable rate borrowers by about a third. 'This provides substantial relief for borrowers who may otherwise have struggled with their payments and provides additional disposable funds for those who would not,' she added.
Significant reduction in prices and the cost of mortgages may be two of the factors behind the recent rise in buyer enquiries reported by estate agents, Nationwide believes. But the fact that this has yet to feed into actual housing transactions means other factors are at play. 'The ability to raise a larger deposit is acting as a constraint. Also consumers' expectations of house price growth are still falling and this is likely to dissuade many from moving just now,' said Earley.
'However, there are some very early signs that borrowers are perhaps becoming a little more optimistic about the path of house prices. The pace of fall in consumers' expectations of future house prices has moderated, which could suggest that confidence in the market may begin to pick up later this year,' she added.
But she concluded that it is too early to say that the market has reached its trough, given the economic recession, however, falling house prices and interest rates have made the situation for borrowers today much easier than it might have been.
