9 Oct 2008 09:00
Halifax House Price Index
| National Index | September 2008 |
| All Houses, All Buyers Index (1983=100) | ||
| Monthly Change -1.3% | Annual Change -12.4% | |
| Standardised Average Price (seasonally adjusted) £172,108 | ||
Commenting, Martin Ellis, Chief Economist, said:
"House prices declined by 1.3% in September. The overall price decrease in the three months to September was very similar to that in the previous quarter, indicating that the trend rate of decline may be beginning to stabilise.
The ongoing pressures on householders' income, combined with the reduction in the availability of mortgage finance, however, mean that market conditions will remain challenging."
| Key Points House prices fell by 1.3% in September. This was the smallest monthly fall for seven months. House prices nationally declined by 5.2% in Quarter 3. This was almost identical to the 5.1% fall in Quarter 2, indicating that the trend rate of decline may be beginning to stabilise. House prices in September were 12.4% lower on an annual basis. The UK average price has returned to close to the level it was at in January 2006 (£170,866). House price to earnings ratio - a key affordability measure - is improving. The house price to average earnings ratio has fallen from a peak of 5.84 in July 2007 to 5.02 in July 2008. This is the lowest level for more than four and a half years (February 2004: 5.01). We expect a further improvement in the ratio as prices continue to soften. The long-term average is 4.0. The average mortgage rate paid by all borrowers (i.e. the average rate on outstanding mortgage loans) has fallen slightly from 5.91% in August 2007 to 5.83% in August 2008. Yesterday's 50 basis points cut in Bank rate will help borrowers faced with increasing pressures on their finances and provide a valuable support to the housing market. |
Negative real earnings growth, high house prices relative to incomes and reduced mortgage availability constrain housing demand
Average earnings have increased at an insufficient pace to match the rise in retail prices over the past year, rising by 3.5% compared with a 5.0% increase in the Retail Price Index. At the same time as this decline in real earnings, significant rises in fuel and food prices - 25% and 13% higher respectively during the last 12 months - have reduced the amount of discretionary income available to households.
The resulting pinch on incomes, combined with the high level of average house prices in relation to earnings, has made it difficult for potential house purchasers to enter the market. The decline in credit availability is a further constraint on buyers. These significant pressures on housing demand are causing house prices and activity to fall.
Housing market activity declines further but some signs of stabilising
The number of mortgages approved to finance house purchase was virtually unchanged in August at a seasonally adjusted 32,000 compared to 33,000 in July. Nonetheless, approvals were 70% lower than in August 2007. (Source: Bank of England)
Completed property sales in August 2008 were 47% lower than in August 2007. Newly agreed sales - i.e. not yet completed - continued to fall, but the pace of decline stabilised. (Source: RICS)
Annual house price inflation at -12.4% in September
The annual rate of house price inflation - measured by the average price over the three latest months compared with the same period a year earlier - was -12.4% in September. The UK average price has returned to close to the level it was at in January 2006 (£170,866).
House price to earnings ratio - a key measure of housing affordability - is improving
The house price to average earnings ratio has fallen from a peak of 5.84 in July 2007 to 5.02 in July 2008 (latest available). This is the lowest level for more than four and a half years (February 2004: 5.01). We expect a further improvement in the ratio as prices continue to soften. The long-term average is 4.0.
Mortgage rate paid by new borrowers has risen …
The average mortgage rate paid by new borrowers has risen by 22 basis points over the past year from 5.88% in August 2007 to 6.10% in August 2008 despite a 75 basis points cut in Bank rate over the period. This increase reflects the significant rise in lenders' funding costs since the beginning of the financial markets crisis.
… but the rate paid by existing borrowers has fallen
The average mortgage rate paid by all borrowers (i.e. the average rate on outstanding mortgage loans), however, has fallen slightly over the same period, from 5.91% in August 2007 to 5.83% in August 2008 as those on existing tracker rates have benefited from the Bank of England rate cuts. (Source: Bank of England)
Interest rate cut will help many borrowers
The recent weakening in the economy has alleviated the MPC's inflationary concerns over the coming months sufficiently to provide the scope for yesterday's cut in Bank rate. Lower interest rates will help mortgage borrowers faced with increasing pressures on their finances and provide a valuable support to the housing market.
Halifax 9.375bd (HALP)