House prices fell in October at their sharpest annual rate since records began in 1991, the Nationwide building society said on Thursday, as the housing market slump gains momentum.
The mortgage lender said house prices fell 1.4% on the month. That was the 12th consecutive monthly fall, albeit smaller than the declines registered in each of the previous three months. The annual drop of 14.6%, after a 12.4% annual fall in September, was the biggest since the last housing market crash and took the average property price to £158,872, almost £30,000 below their peak a year ago.
The precipitous drop in house prices both in Britain and overseas has been a key driver of the crisis that has rocked the banking sector, prompting unprecedented government intervention. And analysts reckon house prices will continue to fall for some time, impacting further on depressed consumer spending and the weakening economy. “This wealth destruction, coupled with growing concerns about negative equity is likely to keep consumer confidence very weak,” said James Knightley, economist at ING. “This, combined with plunging business surveys and the third-quarter negative GDP rate should ensure another Bank rate cut on Thursday of at least 50 basis points, with further large cuts likely in the next few months.”
The economy shrank 0.5% in the three months to September and is expected to continue to contract into next year as the global financial crisis spreads out from the hard-hit financial sector. That has raised expectations the Bank will cut rates to 4.0% from 4.5% next week, following up this month’s 50 basis point cut.
LONG ROAD TO RECOVERY
Nationwide said homes were now taking 60% longer to sell than a year ago and turnover rates had fallen to their lowest level since this series began in 1974. The mortgage lender’s chief economist, Fionnuala Earley, said financial market instability and the prospect of recession meant the housing market could take longer to recover, although lower interest rates would help existing homeowners.
“The possibility of even deeper rate cuts this year is increasing as the Bank of England attempts to prevent a deep and prolonged recession,” Earley said. “This will make life easier for borrowers on variable rate loans and those coming to the end of fixed-rate deals.”
Money markets show investors are betting interest rates, currently 4.5%, could be cut to 2.5% or below by this time next year. (Reuters)