House price inflation has fallen to its lowest level in a decade, dropping sharply to 3 per cent from last year’s 12.7 per cent, according to Nationwide, and raising hopes that the once-soaring property market has averted a crash through a soft landing.
Annual price growth was the lowest since 1995 when prices fell by 2.5 per cent, compared to the previous year, on Nationwide’s index.
After five years of double digit growth, which peaked in 2002 with a 25 per cent rise in annual prices, housing this year is set to underperform the growth in average earnings for the first time in 10 years. It is also the first year since 1999 that the UK stock market has outperformed the housing market.
Nationwide, the largest building society, said on Friday: “The rate of deceleration in the annual rate led many to predict that this was the start of a severe crash in the market. But looking at changes over the past three months shows the more sober path of prices during the year.”
It said the average house now cost £157,250, almost exactly the same as in May.
House prices have picked up since the autumn. Nationwide said prices increased by 0.5 per cent in December from November’s 0.3 per cent. But Fionnuala Earley, its chief economist, said although financial markets expected the Bank of England to cut interest rates, “We do not expect a cut to cause annual price inflation to accelerate back to levels seen in early 2005.”
She said housing was still expensive, especially for first-time buyers, and predicted a stagnant housing market next year with prices rising by 0-3 per cent, in line with many other forecasters.
Peter Spencer of the Ernst & Young Item Club, said: “The housing market is remarkably stable. The overvaluation in housing - at about 10-20 per cent - is going to be resolved by continued sideways movement until earnings growth picks up enough to close the gap.”
Although economic growth this year slowed sharply to 1.7 per cent from 3.2 per cent last year, the housing market has been supported by relatively low interest rates and high employment.
