Average home prices continue to fall

The recent run of house price falls have wiped out most of the gains seen to property values during the past year, figures showed today.

The average cost of a home dropped by a further 0.3% during November, following a 0.7% slide in October, as activity in the housing market remained subdued, according to Nationwide.

The typical house now costs £163,398, just 0.4% higher than a year ago, after prices fell or remained unchanged every month for the past six months.

The figures, which come just days after the Bank of England reported a further fall in the number of mortgages approved for house purchase, are likely to stoke concerns among economists that house prices will suffer a double-digit drop during 2011.

But Nationwide said there was no reason to expect the rate at which prices are dropping to accelerate, adding that an anticipated fall in the number of people selling their homes in the coming months was likely to offer some support to prices.

The group also pointed out that its quarter-on-quarter index, which is generally seen as a smoother indicator of market trends, actually improved slightly during the month.

House prices fell by 1.3% during the three months to the end of November, compared with a 1.5% slide during the previous three-month period.

Martin Gahbauer, Nationwide's chief economist, said: "There is little evidence to suggest that house price declines are likely to accelerate in the months ahead.

"Much of the weakness in property values since the spring has been driven by a return of sellers to the market, following unusually low levels of property for sale in 2009 and early 2010.

"However, there is little to indicate that these sellers need to achieve a sale urgently for financial or economic reasons, which means that the downward pressure on house prices is only modest."

He added that there were early indications that the number of new properties being put up for sale may be slowing down, as recent price falls put potential sellers off marketing their home.

The current housing market downturn has been triggered by a mismatch between supply and demand, as sellers have continued to come to the market but buyers have sat on their hands until the outlook for both house prices and the wider economy becomes clearer.

The Bank of England said earlier this week that mortgage approvals for house purchase had fallen for the sixth consecutive month to just 47,185, well below the 70,000 to 80,000 approvals a month which are considered to be consistent with a stable housing market.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The 0.3% drop in house prices in November reported by the Nationwide is fully consistent with our view that house prices will trend down gradually to lose around 10% of their value from their peak 2010 levels by the end of 2011.

"On the Nationwide measure, this would see average house prices fall to £153,100 in 2011. If our forecast of a 10% correction proves to be right, this implies that house prices have another 6% to fall.

"Critical to the development of house prices over the coming months will be the amount of houses coming on to the market, mortgage availability and how well the economy and jobs hold up as the fiscal squeeze increasingly kicks in."

Paul Diggle, property economist at Capital Economics, said: "House prices fell once again in November, taking them back to December 2009 levels.

"House prices are almost certain to end the year in negative territory on a year-on-year basis. The poor outlook for credit availability and the labour market mean that 2011 is likely to be the same."