UK house prices fell for the first time in four months in August, according to a closely watched index, contributing to the picture of a generally sluggish housing market.
The Nationwide House Price Index registered a 0.6 per cent decline in August, the first negative reading for the Index since a 0.2 per cent decline in April. Year-on-year, house prices stand 0.6 per cent below where they were in 2010.
“For some time now the residential property market has been moving sideways, as weak demand for homes coexisted with a situation where relatively few homes were coming on to the market,” said Robert Gardner, chief economist at Nationwide.
“A further fall in employment would be likely to upset the relatively delicate demand-supply balance and put downward pressure on prices,” he said.
Mr Gardner noted that although unemployment resulting from the recession of 2008-09 has not been nearly as severe as in the recession of the early 1990s, that probably reflects the development of a much more flexible labour market in the intervening years.
But he noted that worker productivity had declined, posing a threat to corporate profits, and posing a risk that “faced with a further deterioration in demand for their products, firms may react by laying off more workers”.
Indeed, many private sector forecasters are pencilling in a rise in unemployment in the year ahead.
Howard Archer, economist at IHS Global Insight, noted that on the Nationwide Index, average house prices last reached their peak in June 2010, and are now at £165,914, some 2.5 per cent below that level. ”We suspect that squeezed household purchasing power, tightening fiscal policy, a weakening labour market and persistent serious consumer concern over the economic outlook will limit potential buyers and weigh down on house prices,” Mr Archer said.
Moreover, Mr Archer noted, mortgage availability remains a problem, with many lenders demanding significant downpayments that require years of savings before younger people can become first-time buyers.
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