UK property prices drop 3.6% in September amid fears that spending cuts are affecting the market

Although analysts have been predicting that prices would fall in the latter part of 2010 it is still quite a large monthly fall and it means that over the last three months prices have fallen by 0.9%.
 
Quarterly figures are usually regarded as a better measure of the underlying trend but it does indicate that confidence in the market is waning. It remains to be seen if the spending cuts review due later this month will dent the market further.
 
The Halifax report also shows that year on year prices are up by just 2.6%. Housing economist Martin Ellis said it is too soon to conclude that September’s monthly 3.6% fall is the beginning of a sustained period of declining house prices.
 
‘A shortage of properties for sale contributed to an imbalance between supply and demand and was a key factor driving up house prices last year. An increase in the number of properties available for sale in recent months has reduced the imbalance. At the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase,’ he explained.
 
‘Together, these factors have been exerting some downward pressure on prices in recent months. In addition, volatility of the month on month measure has increased due to the low transaction levels across the market. This underlines the difficulty of getting a clear reading on the current state of the housing market,’ he said.
 
‘Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market. These will all be constraints on the market, dampening house prices. On the positive side, we expect interest rates to remain very low for some time, which will underpin the improved affordability position for homeowners,’ he added.
 
Simon Rubinsohn, Royal Institution of Chartered Surveyors chief economist, said that the latest figures provide further evidence that house prices are easing after the strong gains seen through the latter part of 2009 and the early part of 2010.
 
‘The 3.6% drop in this index in September undoubtedly highlights the extent of the softer trend in prices. On a month by month basis, house prices are always going to display a degree of volatility and in an environment in which transactions activity is subdued this is going to be even more pronounced,’ he explained.
 
‘RICS expects prices to slip a little further over the coming months, but despite the prospect of public spending cuts we believe the risk of large house price falls remains relatively limited. Key RICS lead indicators measuring the gap between demand and supply suggest the gap is already beginning to narrow which points to a more stable picture emerging for the early part of 2011,’ he added.
 
Adam Challis, head of research at Hamptons International, described the figures as ‘worrying’ and said austerity measures have been harmful to market sentiment. ‘As the October 20th Spending Review announcement draws nearer, buyers are choosing a wait and see approach to see how they will be affected by the cuts. This may well release some pent up activity towards the end of the year,’ he said.
 
‘Notwithstanding the current pause in market demand, the prospects for house prices in London and the South of England remain positive. We expect house prices to resume a modest upward trajectory once the market has adjusted to the new normal. This is likely to be at some point in the spring of next year,’ he added.