UK Housing Market Weakness Gathers Momentum

House prices are falling at the fastest rate in a year and a half, according to a closely watched index, suggesting that weakness in the housing market is gathering momentum.


Prices fell by 0.7 per cent in October after no change in September, according to figures provided by Nationwide building society. Prices declined by 1.5 per cent in the past three months compared with the previous three months – a measure which smoothes out monthly volatility – representing the most rapid drop since April 2009.

Prices have fallen in three of the past five months and been flat in the other two. After a rapid bounce back from the trough of the recession, the recovery has petered out.

House prices are now up by 1.4 per cent in the past 12 months compared with a peak of almost 11 per cent growth in April.

Other measures of house prices are little changed since the beginning of the year, while the key Halifax index declined sharply last month.

Economists believe that the weak level of mortgage approvals for new home buyers since the financial crisis is subduing the housing market.

The number of mortgage approvals is at less than half its pre-crisis levels, and well below the amount that is associated with rising prices, suggesting that a further correction in prices is coming. Prices fell by about 20 per cent during the recession according to both main house price indices, although they recovered somewhat earlier this year.

Nationwide said that an increase in quantitative easing by the Bank of England might provide some support to the housing market – by reducing mortgage rates, improving wholesale funding costs for banks and raising inflation expectations. But few expect the Bank to make any change to monetary policy at its November meeting after the economy grew at a fairly rapid pace in the third quarter.