House prices drop 0.6% in September

House prices fell by 0.6% in September, bringing the average house price to £198,500, according to the latest Halifax House Price Index.

Overall, house prices increased by 0.9% in 2007 Quarter 3. This compares with increases of 2.3% in 2007 Quarter 2 and 3.0% in 2007 Quarter 1, marking a continuing steady downward trend in the rate of house price growth since the end of 2006.

A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market. For example, there were three monthly falls and three monthly increases during the first half of 2005 when the market slowed following the rapid rises in the preceding few years.

The annual rate fell to 10.7% in September from 11.4% in August. The annual rate should decline further over the next few months as the strong monthly house price gains during the autumn of 2006 drop out of the year-on-year comparisons.

House prices increased in most regions – especially in the south of England - during the third quarter. The biggest price rises were in Greater London (2.3%) and the South East (1.8%). Nonetheless, the gains in Greater London and South East were lower than in the previous few quarters, suggesting that the market is slowing in these parts of the country.

The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage in the number of properties available for sale will continue to support house prices. Gross domestic product (GDP) increased at an annual rate of 3.1% in 2007 Q2, comfortably above the long-term average rate of 2.5%. The number of people in employment has risen by 132,000 over the past year and is at an historic high.

Commenting, Martin Ellis, chief economist, said: "House prices fell by 0.6 per cent in September. Overall, prices in Quarter 3 were 0.9% higher than in the previous quarter. This compares with increases of 2.3% in 2007 Quarter 2 and 3.0% in 2007 Quarter 1, marking a continuing steady downward trend in the rate of house price growth since the end of 2006.

September's price fall is consistent with the normal behaviour of the market during a slowdown. A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market.

The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage in the number of properties available for sale will continue to support house prices."