House price slide sparks predictions split

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The Independent Online

Economists were today divided over the future direction of the housing market as Nationwide said prices fell for the second consecutive month during August.

The group reported a 0.9% slide during the month, leaving the average home costing £169,347.

The latest drop follows a fall of 0.5% in July, and is the first time that house prices have dropped for two months in a row since February 2009, according to the Nationwide index.

The annual rate of change also weakened for the fourth consecutive month to stand at 3.9%, the lowest year-on-year rise since November last year.

The gloomy figures come just days after economists warned that the housing market could be heading for a double dip.

Figures from the Bank of England released earlier this week showed that only 48,722 mortgages were approved for house purchase during July, a level that economists consider to be consistent with house price falls.

The data prompted predictions that property prices could end the year around 5% lower than they started it, with some economists saying they expected prices to have lost 25% of their value by the end of 2012.

But Martin Gahbauer, Nationwide's chief economist, said the recent declines in prices were "not an unhealthy development", as the recovery in the housing market had got ahead of improvements in the wider economy.

He added that with little sign of distressed selling, the current period of price declines was likely to remain "relatively modest".

Richard Hatch, head of residential at property consultancy Carter Jonas, agreed.

He said: "Last year, there was a major disconnect between the property market and the economy. House prices rose at a rate that was simply unsustainable and a degree of correction was always on the cards.

"The market is simply readjusting after getting ahead of itself. The market is stabilising, not collapsing."

But others were less optimistic, pointing out that the lack of mortgage finance was limiting the number of buyers able to enter the market.

Many potential buyers have also adopted a 'wait and see approach' due to concerns about the state of the economy, job security and the impact of future tax rises.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "While we believe that a sharp correction in house prices is unlikely, we do expect them to fall back by 3% to 5% over the second half of 2010.

"Furthermore, it is hard at this stage to be optimistic about house prices in 2011 as the fiscal squeeze will increasingly kick in, which will hit people's pockets and lead to serious job losses in the public sector.

"Consequently, a further drop of around 5% in house prices looks highly possible in 2011, and the drop could well be steeper still."

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

He said: "The renewed downturn in house prices signalled by today's Nationwide index is unlikely to be short-lived.

"Not only is the market still significantly overvalued on most measures, but the lack of mortgage credit and the weak economic outlook also point to prices falling through the remainder of this year and 2011."

Capital Economics predicts house prices will end 2010 5% lower than they started the year, with further falls of 10% in both 2011 and 2012 expected.