What the experts say about falling house prices

Speculation about falling house prices in the UK is rife at present, with officials from various related industries making their predictions. The Council of Mortgage Lenders has changed its prediction of a 1% rise in house prices this year, which was made last October, to a fall of 7% over the course of the year. Various other industry officials have predicted that house prices could fall from between 5% to 20% and beyond. Even the government has inadvertently let it be known that it expects house prices to fall by around 5-10% at best.

Of course, there has already been a good deal of evidence to back up these predictions, with house prices having fallen for a number of months. However, after ten years of enjoying a housing boom the housing market took its biggest hit during the month of May, with house prices tumbling by 2.5% according to a report from the Nationwide Building Society. This is said to be the largest monthly fall recorded by Nationwide since 1991, and means that house prices are now 4.4% lower than they were this time last year.

However, industry experts have said that whilst house prices are 4.4% lower now than they were at this point last year, there are still up by 5% compared to this time two years ago, and are still up by 10% compared to this time three years ago. The Department of Communities and Local Government added that the average house price was still around 39% higher than it was five years ago.

A number of industry professionals have expressed their views about the latest house price fall:

An official from the National Association of Estate Agents stated: “The national sales figures do not tell the whole story. We know from our members that the picture is still very regional with some areas continuing to do better than others. Indeed, our recent survey of agents records some stability returning to the market in the number of sales agreed, the number of viewings before a sale is secured and the average difference between asking and sales price.”

He added: “The issue here is consumer confidence. It is apparent from our own survey results that some people are adopting a wait and see attitude, watching the market, before making any decisions, which is affecting prices. There is no denying that the credit crunch and tighter economic factors have affected confidence in the market but it is still important to remember that the underlying factors that support the property market remain: low unemployment, historically low interest rates and a latent demand for houses.”

One official from Moneysupermarket.com said: “This is further gloomy evidence that house prices are slipping and will undoubtedly not do anything to help the already low levels of confidence in the market. The softening of house values will continue to hit the most vulnerable borrowers, those with little or no equity in their homes. As equity is eroded with falling values, these borrowers will find themselves paying more for their mortgages or, in the worst case scenario, find themselves with no borrowing solutions at all.”

She went on to state: “But with every cloud comes a silver lining for some and in this case, it is the first-time buyer who stands to gain. Today’s news may encourage some to re-enter the market. However, as there is an expectation of prices falling further, they may well play a longer waiting game to try to pounce at the bottom of the market - the longer they wait, the more stagnant the mortgage market becomes.”

The Royal Institute of Chartered Surveyors said: “The difficulties in the mortgage market are stretching accessibility and threaten to reduce transaction levels by 40% this year. With buyers unable to secure financing on reasonable terms, some sellers are now choosing to cut prices. The market will only stabilise once transaction volumes recover. The Government and the Bank of England should continue to implement measures to restore the smooth functioning of the mortgage market, before the drop in transactions and prices begins to really hurt the economy.”

The Department of Communities and Local Government thinks that the main issue at hand is low credit supplies, and it stated: “When looking at trends in the market, it is important to remember that UK house prices are 39% higher than five years ago. The current issue affecting the market is fundamentally about the supply of credit - a very different situation to the early 1990s which was about high interest rates and unemployment.”