House price boom starts to crumble

HOME prices fell for the first time in more than a year in May, Land Registry data showed yesterday, sparking fears of a second downturn in Britain’s fragile housing market.

The average residential property dropped 0.2 per cent in value during the month as uncertainty over austerity measures to be enforced by the incoming government weighed on market confidence. The south-east and London were insulated from the dip, gaining 0.9 per cent and 0.7 per cent respectively, but industrial areas such as North Tyneside and Sheffield suffered declines of up to 1.5 per cent.

Worst affected were the east Midlands and Welsh regions Blaenau Gwent and Denbighshire, which all saw monthly slides of 3.6 per cent. In Middlesbrough, where house prices fell by 0.1 per cent during the month, the average home has lost 9.2 per cent of its value since the start of the year.

A separate report from Hometrack suggested house price growth slowed from 0.2 per cent in May to 0.1 per cent in June.

The numbers come less than a week after poor new home sales figures from the US sent a dramatic shudder through global equity markets. Investors are concerned a double-dip retrenchment in the housing market on either side of the Atlantic would severely hit consumer spending and risk dragging on the fledgling economic recovery.

Howard Archer of IHS Global Insight said: “The Land Registry data for May and the June Hometrack survey both add substance to our long-held belief house prices will struggle to make significant gains over the coming months. Housing market activity remains well below long-term norms despite edging up recently.”

He added: “The economic fundamentals of high unemployment, still falling full-time employment and low earnings growth are hardly ideal, a major fiscal squeeze is starting, credit conditions remain tight and house price-to-earnings ratios have moved back up.”

David Smith of property consultancy Carter Jonas said while properties in desirable
locations would continue to gain in value, less fortunate areas would see further depreciation.

Evidence indicates more people are putting their homes on the market, moving the supply-and-demand balance back in favour of buyers. The shortage of properties has been a strong driver of the pick-up in house prices from their low point in the first quarter of 2009.

Richard Donnell of Hometrack said: “The growing supply-and-demand imbalance spans the country and under normal market conditions this would typically result in a downward pressure on prices. However, very low transaction volumes are exacerbating the scarcity of housing for sale and this is acting as a support to prices.”