House prices drop in November

UK house prices fell by 1.1% in November, according to the latest Halifax House Price Index. In annual terms, house prices are 6.3% higher.

A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market. For example, there were six monthly falls and six monthly increases between July 2004 and June 2005 as the market slowed in response to a series of interest rate rises during 2004.

The housing market has slowed in recent months as the increase in interest rates between July 2006 and July 2007 has taken effect. Higher mortgage repayments and falling real earnings have put pressure on households' income, resulting in a slowdown in both house price growth and activity.

A robust UK economy and the accompanying sound health of the labour market provide strong underpinnings for the housing market. Gross domestic product (GDP) increased by 0.7% between 2007 Q2 and 2007 Q3, the eighth consecutive quarterly increase above the long-term average rate of 0.6%.

The economy has now grown for 61 successive quarters. This represents the UK's longest running period of unbroken GDP growth on record; a performance that no other developed nation can match. Again, this provides the housing market with a very solid foundation.

The number of people in employment increased by 69,000 between 2007 Q2 and 2007 Q3. Employment in 2007 Q3 was 178,000 higher than in 2006 Q3, at 29.22 million. Employment levels are at a record high.

Market activity is lower. Mortgage approvals to fund house purchase fell by 12% in November to 88,000 (seasonally adjusted). Approvals in November were 32% lower than a year earlier. New buyer interest in purchasing a house fell for the eleventh successive month in November.

Commenting, Martin Ellis, chief economist, said: "House prices fell by 1.1 per cent in November. In annual terms, house prices are 6.3% higher.

The housing market has slowed in recent months as the increase in interest rates between July 2006 and July 2007 has taken effect. Higher mortgage repayments and falling real earnings have put pressure on households' income, resulting in a slowdown in both house price growth and activity.

The UK economy is in sound shape. Strong market fundamentals, a structural housing supply shortage and pent-up demand from a large number of potential first-time buyers will support house prices, preventing a sustained and significant fall."