Fall in house prices may be slowing, say analysts

tentative signs that the sharp declines in house prices and consumer confidence may be easing emerged yesterday, only to be dismissed by most analysts and observers.

The Nationwide Building Society surprised economists by reporting that house prices fell by a much smaller-than-expected 0.4 per cent in November – the smallest monthly drop in prices since they started to decline a year ago.

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The November figure compares with declines of 1.3 per cent in October, 1.5 per cent in September and 1.8 per cent in August. The annual rate of decline in house prices eased to 13.9 per cent in November, down from 14.6 per cent in October, the highest figure since 1991.

Fionnuala Earley, Nationwide's Chief Economist, said: "The price of a typical house is now £158,442. This is about £25,000 less than this time last year but is still about £25,000 higher than in November 2003."

The marginally brighter outlook in the housing market was mirrored in the monthly barometer of consumer sentiment from pollsters Gfk/NOP. Their Consumer Confidence Index has risen by one point to -35. Meanwhile a measure of confidence in the "personal financial situation over the next 12 months" was up two points. A measure of confidence to make "major purchases", such as furniture or electrical goods, meanwhile improved four points.

A spokeswoman for Gfk/NOP said the figures could not be taken as an indication the economy is about to turn the corner, particularly given how small the improvements are in the context of this month's surprise 1.5 percentage point cut in interest rates from the Bank of England. Rachael Joy said: "The Consumer Confidence Index has improved, but continues to languish at near record lows. Consumers are still being battered by poor news about the economy and mounting concerns about job losses. The dramatic cut in interest rates this month appears to have done little to improve sentiment so far, as consumers fret over the impact of a looming recession."

Her scepticism was mirrored in economists' verdicts on the Nationwide data. Howard Archer of Global Insight said house price data tends to be volatile. "We doubt very much the markedly reduced monthly drop in house price in November marks the start of an improving trend," he warned.

"Ongoing very tight credit conditions, still relatively stretched housing affordability, recession, faster rising unemployment and widespread expectations that house prices are likely to fall a lot further form a powerful set of negative factors." According to the Standard & Poor's rating agency, distress in the property market is if anything intensifying. The group says late payments on UK "sub prime" or nonconforming mortgages have increased by 24 per cent in the past year to their highest level yet, driven by house price declines, re-financing problems, and a lack of affordability – a further blow to the already near-moribund mortgage backed securities market, which the Government is attempting to revive.

Credit analyst Kate Livesey added: "Taking out a new mortgage or refinancing as a nonconforming borrower is now extremely difficult."