House prices in England and Wales fell for a seventh month in a row in January, dropping 2.2 per cent from a year earlier, property data firm Hometrack said.
The monthly survey of more than 5,000 estate agents and surveyors showed prices slipped 0.5 per cent on the month, slightly more than December's 0.4 per cent decline. That took the average house price down to 153,600 pounds.
Hometrack said the sluggish start to 2011 was likely to continue, given the uncertainty over the economic recovery and worries about the effect of government cuts.
"Prices are set, in the short term, to remain under downward pressure," Richard Donnell, director of research at Hometrack, said in a statement. "Household budgets being squeezed by increased taxation will be stretched further if concerns over rising inflation translate into higher interest rates."
Over the last six months, Hometrack's survey has recorded a 26 percent fall in demand, with a drop of 9.5 percent in January alone, suggesting the housing market faces more fundamental problems than the usual post-Christmas slowdown.
There was a 9.5 per cent fall in the number of new buyers registering with agents in January, compared to a 4.8 percent fall in December and a drop of 2.7 per cent in January 2010, the survey said.
"Concerns over the economic outlook and the biting reality of spending cuts are doing little to improve a fragile market defined by weak consumer sentiment and a lack of demand for housing," said Donnell.
A jump in inflation last month raises the prospect that interest rates may rise earlier than expected this year, but news this week that the economy unexpectedly contracted in the final quarter of 2010 has made the rate outlook difficult to predict. Government spending cuts due to start this year will also weigh on sentiment in the housing market.
Partly offsetting the lower housing demand this month was a drop in the number of homes coming onto the market. Supply slipped by 5.4 per cent, its biggest monthly fall for four years.
Separate data on Wednesday from the British Bankers' Association showed mortgage approvals fell to their lowest level in nearly two years in December.
City A.M. Reporter