House prices suffered their first fall for two years last month, according to figures from the country's largest mortgage lender that capped a run of stories pointing to a sharp slowdown in the property market.
The price of the average home fell by 0.6 per cent (£900) in August to £160,565, the steepest percentage fall since December 2000, Halifax bank said. The bank said it was becoming clear that five interest rate rises since last November had acted as a brake on the housing market.
Chris Hamnett, a professor of human geography at King's College London, said: "August will turn out to have been a fundamental turning point. When that happens the climate shifts and it is quite possible there will be a move towards a buyers' market for a couple of years. In the struggle between fear and greed, greed is beginning to be replaced by fear."
Halifax was quick to allay concerns that the market was on the brink of a crash, saying there had been 10 monthly falls in the past five years, a period that has seen house values double. Martin Ellis, its chief economist, said: "Occasional monthly falls are part of the normal fluctuations in the housing market, even during periods when the market is very strong."
On average, prices had suffered a fall once every six months, he said, adding that this was the third fall in an August - traditionally the dog days for the housing market - since 1998. "We continue to expect house price inflation to slow gradually over the remainder of 2004 and into next year as higher interest rates and the increasing difficulties faced by potential first-time buyers in entering the market curb housing demand." The market was underpinned by a strong economy, historically low debt-servicing costs and a chronic shortage of homes for sale.
House prices had risen 1.8 per cent over the past three months, a third of the 6.5 per cent pace in the previous quarter, he said. "This is what the Bank of England - and probably most people - want."
Halifax's figures follow a report by Nationwide, the UK's largest building society, that prices rose just 0.1 per cent last month and data from the Bank of England showing a record fall in new mortgage approvals in July. Howard Archer, an economist at Global Insight consultancy, said: "Evidence of a housing market slowdown is now becoming ever more widespread and marked."
Capital Economics, which forecasts a 20 per cent crash, said the coming months would be the "crunch time" for the market. "It's difficult to avoid the conclusion that something more meaningful is now afoot," Ed Stansfield, its property economist, said. "This looks as good a time as any for the downturn to begin and the key question now is how deep and long."
On the financial markets, the pound tumbled to a three-month low against the dollar as traders bet that UK interest rates would not need to rise much more. "With consumer spending also showing signs of moderating in July and August, there is a growing possibility that the Bank could leave rates unchanged through the rest of this year," Mr Archer said.
However, there were signs of inflationary pressures elsewhere in the economy from a separate survey showing that the services sector defied forecasts of a slowdown in August to post its strongest growth in three months. The report from the Chartered Institute of Purchasing and Supply showed that prices charged by firms rose at the sharpest rate in almost four years.
Geoffrey Dicks, the chief UK economist at Royal Bank of Scotland, said: "Prices rising at a faster rate in the dominant services sector. [This is] one for the Bank to mull over in November."Reuse content