Is This Now a Housing Price Crash

The flood of negative news from the UK property market continues leading analysts to ask – is this now a house price crash? House prices are falling at their fastest rate for nearly 18 years as potential buyers stay away from the market. Figures from the Nationwide just released underline the scale of the problem now facing the market. Average property prices have fallen across the UK by 10.5 per cent over the last year, and worse still the pace of decline is accelerating according to Nationwide Building Society. While prices fell by 1.5% in July, this has accelerated to 1.9 per cent in August.

House prices have now fallen for 10 months in a row. On a brighter note, while there was still a great deal of uncertainty, the Bank of England’s forecasts for growth and inflation have been widely interpreted as opening the door to rate cuts.

Market rates are beginning to respond to this, and as a result mortgage rates, particularly fixed-rate deals, have started come down. But the competition is limited to borrowers with large deposits, with many lenders now offering their best deals only to people borrowing less than 60% of their home’s value.

UK House Price Affordability Index

UK house prices remain near extreme levels of unaffordability that requires a substantial fall in UK house prices until prices reach the levels of even 2002. The current trend clearly indicates a weak UK housing market for several years. During a recessionary period that the UK is expected to enter towards the end of 2008, real disposable incomes tend to decline. This suggests that despite falling house prices, the affordability index may not see any significant improvement until 2010.

Conclusion

The UK Housing market is on track for a significant drop in prices until at least 2010.