No room for optimism after tiny house price increase

The housing market is set for a period of stalemate in the coming months, economists warned yesterday after Nationwide reported only a marginal rise in prices during September.

The building society said that house prices gained just 0.1 per cent last month, and fell by 0.9 per cent on a three-month basis, confirming economists' views that the market is set for a period of decline. The three-month rate turned negative for the first time since May 2009.

"Flat house prices reported byNationwide in September following significant drops in August and July do not materially change our view that house prices will trend gradually lower over the final months of 2010 and in 2011," said Howard Archer, chief economist at IHS Global Insight. "We expect house prices to fall 10 per cent."

Nationwide's analysis comes less than a month before the Coalition's Spending Review, which is expected to slash as much as 40 per cent off some departmental budgets and lead to thousands of job losses.

"Housing market activity iscurrently low, the economic fundamentals are far from ideal for the housing market, a major fiscal squeeze is getting under way, and price to earningsratios have moved up overall from their early-2009 lows and are above their long-term averages," Mr Archer said. "On top of this, credit conditions remain tight, with mortgages still hard to get for many people, particularly first-time buyers."

Nationwide's chief economist, Martin Gahbauer, painted a brighter picture, insisting there were no signs of "significant pace of decline in property values." The average value of a house in the UK in September was £166,757, Nationwide said.

The update follows the Land Registry's report this week of a 0.3 per cent house price increase in August, half the size of gains seen in July. The Land Registry said the average home in England and Wales now costs £167,423 . The agency said it was the fifth consecutive month that prices had risen, although the annual rate of growth fell to 6.7 per cent, down from 6.8 per cent in July.

Nationwide and Land Registry data contrast with surveys from otherorganisations. The Council for Mortgage Lenders said prices were down in August, compared with July. HMRC recorded a 6 per cent fall in the number of home sales in the same month.