When Caroline Flint, the Housing minister, wandered into a meeting with her briefing notes visible to photographers, most of the attention focused on her embarrassment and the fact that the Government was now planning on the basis house prices would fall this year. But the depth of Ms Flint's gloom attracted less comment.
To recap, she told colleagues that prices would, at best, fall by between 5 and 10 per cent this year, and that there was a good chance the decline could be more substantial. Though this humiliating little episode occurred just three weeks ago, at the time Ms Flint's warning was much more downbeat than most forecasts. It is becoming increasingly clear, however, that while her PR skills may have been lacking, Ms Flint's analysis was spot-on.
Nationwide Building Society's snapshot of the housing market in May, published yesterday, was its gloomiest monthly report since it began such surveys in 1991. Nor is there any prospect of the survey proving to be a statistical blip. Economic data from GfK on consumer confidence and the CBI on the retail sector, also published yesterday, made equally gloomy reading.
This has become a vicious cycle. Consumer confidence is at its lowest level since 1990, says GfK. Not surprising given the fact that the correlation between house prices and confidence in the UK is higher than in any other major industrial country. Equally unsurprising is the fall in retail sales last month reported by the CBI. If consumers are worried about the future, they don't spend so much.
Against this backdrop, it would be reasonable to expect the Bank of England's Monetary Policy Committee to cut interest rates next week. Unfortunately, its hands are tied by the darkening outlook for inflation, a threat reiterated by the CBI's data, which showed prices in the retail sector rising at their fastest rate for 16 years during May.
Not that interest rate cuts would necessarily have the desired effect. Cutting the cost of borrowing ought to result in improving confidence amongst both existing and new homeowners. But with the mortgage market in turmoil and so many borrowers coming to the end of very cheap deals arranged two or three years ago, a very large number would see no reduction in monthly repayments even if the MPC were to cut rates.
For its part, Nationwide is still forecasting that house prices will fall by less than 10 per cent over the course of 2008 as a whole. It is difficult to share its optimism, though it must be acknowledged that the housing market continues to be subject to marked regional differences, with some areas of the UK, notably Scotland, bucking the overall trend.
There is one bit of good (or at least less-bad) news. There are still good reasons to think there will be fewer victims of this housing market correction than the decline of the early Nineties, when repossessions soared. This time around, fewer people have bought at the top of the market and borrowing has, believe it or not, been more responsible, with lower average loan-to-values and fewer interest-only mortgages.
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