UK house prices fell in December
House prices in the three months to December were 0.9% lower than in the preceding three months, according to the Halifax House Price Index. This rate of decline remains significantly lower than the quarterly falls of 5-6% during the second half of 2008.
House price data on this basis provides the clearest indication of overall market trends, smoothing out the monthly volatility caused by the reduced number of monthly transactions used to calculate all house price indices.
On an annual basis, prices in December were 1.6% lower as measured by the average for the latest three months against the same period a year earlier. Prices in December alone were 3.4% lower than in December 2009.
Nationally, Halifax expect limited movement in house prices during 2011 but with the risks on the downside. Some modest variations in house price performance across the country, however, are likely. The regional picture is likely to be affected by the impact of public spending reductions.
The low interest rate environment has reduced the burden of servicing mortgage debt. Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in mid 2007 to 29% in the last quarter of 2010. This key measure of affordability is at a better level than the long-term average over the past 25 years (37%) and is an important factor supporting housing demand.
Possible sign of housing market activity stabilising. The number of mortgages approved to finance house purchase – a leading indicator of completed house sales – increased in November following six successive monthly falls, according to Bank of England industry-wide figures. The number of approvals, at 48,000, was the highest since July on a seasonally adjusted basis. Approvals were 19% lower than a year earlier – 59,000 in November 2009 – due to the ending of the stamp duty holiday on properties between £125,000 and £175,000 at the end of 2009, which boosted the number of approvals during the last part of that year.
Commenting, Martin Ellis, housing economist, said: "Prices in the final three months of 2010 were 0.9% lower than in the previous quarter. This rate of decline is significantly less than the quarterly falls of 5-6% during the second half of 2008. House prices fell by 1.3% between November and December.
"Looking forward, we expect limited movement in house prices during 2011 but with the risks on the downside. Interest rates are likely to remain very low for some time. This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell. Current signs that homeowners are becoming more reluctant to sell would, if continued, help reverse the imbalance between buyers and sellers. Nonetheless, uncertainty about the economy, weak earnings growth and higher taxes could put some downward pressure on demand."