The real state of the nation's house prices

THE dramatic fall in house prices compared with their estimated values in the boom years appeared to be accelerating last week, with reports of the biggest monthly price fall in living memory. But the picture may not be as black as painted.

Neither the 3.1 per cent collapse recorded by the Halifax nor the 1.4 per cent by Nationwide is a true indication of affairs. They are quirks produced by a ludicrous and ultimately futile attempt to bribe reluctant buyers with a stamp duty holiday. This boosted sales by 90,000, or 18 per cent, in August, according to the Adams Residential Index, but that came from people rushing to beat the deadline. Only 'distress' sales such as repossessions went through last month, dragging average prices far below the norm.

Ironing out the bumps during the three months from July to September, the Halifax shows that values declined 1 per cent. A more optimistic Nationwide reported increases of between 0.6 and 1.9 per cent in Yorkshire, Ulster, Scotland and Wales, making a UK-wide decline of 0.5 per cent.

Closer inspection of areas such as Edinburgh and Gosforth in Newcastle also confirms that the North has suffered nowhere near the well-publicised pain felt in the South. It caught the boom late and has barely dropped in the crash.

Ministers seem to have learnt nothing from the 1988 debacle, when setting a deadline for double tax relief artificially boosted the market and exaggerated subsequent falls. It illustrates the folly of using gimmicks to tinker with housing and has come back to haunt the Government when it can least afford more bad news.

September's huge apparent price drop will wipe out much of the gain from interest-rate cuts by battering already fragile confidence - the key to any recovery. Real recovery will be put back at least a couple of months because potential buyers have more reason for postponing a move. Their motivation was not helped by John Wriglesworth, the most influential of housing analysts, predicting that prices will continue to fall by 5 per cent next year. This was without taking into account the news of 30,000 redundancies in the coal mines, which will hit certain areas like a thunderbolt.

In general terms I think we are probably close to, if not at the bottom of the slump and, as Tim Melville-Ross of the Nationwide points out, the average home is cheaper than it has been in real terms for 30 years. The next round of figures, scheduled for after Christmas, may show few significant falls, particularly if interest rates are well below 8 per cent by then.

That could bring a busy spring - the traditional home-hunting season - as buyers decide it is time to come out of the woodwork. Prices will not necessarily catch fire, with so many homes on the market and continued fears about unemployment, but they may lose their chill, easing down across the country as a whole but staying level in many areas.

It is a message often preached during the past 18 months, but this time we may really have hit bottom.

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