Property market stalls amid recovery fears

Property price growth stalled during June, adding to mounting speculation that the housing market recovery has run out of steam, figures showed today.

The average cost of a home edged ahead by just 0.1% during the month, following a rise of 0.5% in May, according to Nationwide Building Society.

The annual rate at which house prices are rising also fell for the second month in a row, dropping to 8.7%, down from a year-on-year rise of 9.8% in May.

The drop reflected the fact that house prices were increasing at a faster pace this time last year.

Nationwide said unless there was a significant pick-up in house price growth during the coming few months, the annual rate of house price inflation was likely to continue to drift lower.

Today's figures add to a raft of gloomy data on the property market, with figures from the Bank of England, released yesterday, showing that the number of mortgages approved for house purchase had remained broadly flat in May, as activity in the housing market failed to pick up.

Earlier this week the Land Registry reported a 0.2% house price fall in England and Wales during May, while property intelligence group Hometrack said prices edged ahead by just 0.1% during June as demand from potential buyers stalled.

Recent surveys have pointed to an increase in the number of homes being put up for sale, but this is failing to be matched by rising numbers of buyers.

As a result the mismatch between supply and demand is beginning to ease, reducing the upward pressure on prices.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The marginal house price rise in June reported by the Nationwide adds to a recent flurry of soft data on the housing market and further fuels our belief that house prices will struggle to make significant gains over the coming months and may very well be only flat overall through the rest of the year."

Ed Stansfield, chief property economist at Capital Economics, is more pessimistic.

He said: "After outstripping income growth for over a year now, house price gains more or less stalled in June.

"The impact of the fiscal squeeze on incomes and confidence is likely to drive house prices back down again over the next 18 months."

But the slowdown in house price growth is not necessarily a bad thing.

House prices have risen by around 12% since their low point in 2009 to stand at £170,111 now.

But many economists think the pick-up in the housing market has got too far ahead of the recovery in the wider economy.

Martin Gahbauer, Nationwide's chief economist, said: "Last year house prices increased by more than 10% from the trough and household earnings growth was only about 2%, and it was flat or negative for some households.

"House prices were getting ahead of household earnings and that is not healthy in the long term."

He expects house prices to "stagnate" for the rest of the year as the supply of homes on the market continues to increase.

But although the slowdown in house price growth may be good news for the long-term health of the housing market, it is bad news in the short term for housebuilders.

Shares in major housebuilders, including Persimmon and Taylor Wimpey, were down 4% today following the publication of Nationwide's figures.