UK House Prices Fall For Fourth Month: Report

Source : The Business Times, January 29, 2008

The average cost of a home in England and Wales fell by 0.3 per cent

(LONDON) UK house prices declined for a fourth month in January as higher interest rates and a slumping property market sapped confidence among buyers, a report by Hometrack Ltd said.

The average cost of a home in England and Wales fell by 0.3 per cent, the same rate as in December, to £174,700, the London-based research group said yesterday.

The average selling time rose to 8.5 weeks, the most since the survey of real-estate agents and surveyors began in 2001.

'Weak confidence among would-be purchasers continues to put downward pressure on house prices,' said Richard Donnell, director of research at Hometrack.

'With most buyers also being sellers, households are now waiting until there are signs of general stability before committing.'

Economists predict the Bank of England will reduce the benchmark interest rate further on Feb 7 after cutting it from a six- year high last month.

Governor Mervyn King said last week that a weaker property market 'will go hand in hand' with slower consumer spending in 2008.

Still, faster inflation along with slower economic expansion mean that the bank faces a 'difficult balancing act' this year, Mr King said on Jan 23. Policymakers kept the rate at 5.5 per cent this month.

'Alongside data showing weakness in activity, the bank has flashing on its radar inflation risks that look to be pronounced and enduring,' said David Tinsley, an economist at National Australia Bank here who formerly worked at the Bank of England.

'Rates will get to 4.75 per cent this year, and then the bank will stay on hold.'

Home prices increased 2.3 per cent from a year earlier, the least since June 2006, Hometrack said.

The supply of homes for sale declined 4.6 per cent in the month as people became more pessimistic about future price gains.

'Wait and see' is likely to remain the default position of most homeowners unless they need to move,' Mr Donnell said in the statement. 'For the brave-hearted, there could be some deals to be done if the seller needs to sell or is realistic on the achievable price.'

House prices may decline about 5 per cent this year and about 8 per cent in 2009, Roger Bootle, economic adviser at Deloitte & Touche LLP, said in a report yesterday.

UK home prices probably won't pick up until mid-2009, according to Instant Access Group, the country's biggest property investment club.

The weaker residential property market will drive the worst UK economic performance since 15 years ago, when Britain last emerged from recession, Mr Bootle said.

He predicted the economy, which grew 3.1 per cent in 2007, may expand 2 per cent this year and even less in 2009.

All 30 economists in a Bloomberg News survey expect the central bank to lower the main rate to 5.25 per cent next month.

Policymaker David Blanchflower cited the weakening property market as one reason why the bank needs to 'get ahead of the curve' with lower rates, according to an interview with The Guardian newspaper published yesterday.

'Not only is the interest-rate environment far less favourable, but the global financial crisis and the associated credit crunch have brought an end to the period of easy credit that in recent years has been the bedrock of the rapid rises in house prices,' Mr Bootle said.

'There is a risk that the economy will slip into a full-blown recession.' - Bloomberg