House prices edged down by 0.2% in April
The price of a typical UK home fell by 0.2% in April, following a 1.0% decline in March, according to the Nationwide House Price Index. This is the fourth time in five months that prices have declined. House prices were 0.9% lower than April 2011.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
“Much of the recent softness in measures of housing market activity and house prices is likely to relate to the expiry of the stamp duty holiday in late March. This provided a temporary boost to house prices in early 2012 as buyers brought forward purchases that would otherwise have taken place later in the year.
“This effect should fade in the months ahead, and measures such as the Government’s NewBuy scheme should provide some support to buyer demand. However, the challenging economic backdrop suggests that a significant acceleration in prices or activity is unlikely in the near term.
“Weak economic backdrop likely to weigh on housing market activity through 2012
“The UK economy contracted by 0.2% q/q in the first three months of the year, after falling by 0.3% in Q4 2011. In economic terms the difference between a small rise in output and a fall of 0.2% over the quarter is not particularly significant. Nevertheless, a return to technical recession is likely to undermine already fragile confidence and weigh down on business investment and consumer spending in the near term.
“At the margin, the weak growth data increases the chances that the Bank of England will inject more money into the financial system in the months ahead. However, this is not guaranteed. Although the recovery is a little weaker than policymakers anticipated, inflation is still well above target and is declining more slowly than expected, which will argue against an immediate additional policy stimulus.
“The Monetary Policy Committee’s (MPC) job is not set to get any easier in the months ahead. The Queen’s Jubilee (and associated bank holiday) and the Olympics will create significant volatility in the economic data, making it even harder to judge the underlying strength of the economy.
“Even if the MPC does decide to increase the size of the asset purchase scheme, it is unclear how much of a boost this will provide to the wider economy, or the housing market, since long-term interest rates are already close to their all time lows.
“Looking past the volatility, we expect the UK economy to gradually gather pace in the second half of the year. Monetary policy remains supportive and a gradual decline in inflation should provide some support for real household spending in the quarters ahead.
“Nevertheless, it will take time for this to translate into a significant improvement in labour market conditions and for the feel good factor to filter though to households. As a result, housing market activity is also likely to remain subdued, with prices showing little growth or moving modestly lower over the next twelve months.”