Falling Property Prices 'a Barometer For Wider Economy'

An expert has said the fact that housing prices have fallen in the UK reflects the health of the wider economy.

The fact that mortgage and housing prices in the UK dropped for the second month in succession throughout August can be taken as an indicator of the overall consumer sentiment in the country, an expert has said.

According to Ben Wilkie, editor of What Mortgage, the cost of home credit packages such as tracker mortgages can be used to gauge how healthy the nation's wider economy currently is, as if people are willing to spend on such products then this could show there is a high level of buoyancy in the markets.

However, figures released last week (September 2nd) by Nationwide show that house prices fell by 0.9 per cent month-on-month in August after a decline of 0.5 per cent one month previously.

Martin Gahbauer, chief economist at the lender, commented that this represents the first instance since February 2009 that costs have decreased for two consecutive months.

"Recent market trends remain consistent with an unwinding of the supply and demand imbalance that drove up prices for much of the last year," he said.

The expert added that those households on variable rate mortgages are exposed to any interest rate rise, but maintained that the Bank of England's Monetary Policy Committee is likely to keep the base rate at its current level of 0.5 per cent "well into 2011".

And Mr Wilkie remarked that house prices can be seen as "a barometer of the confidence in the economic situation" and the fact that consumers are slightly concerned about the health of the fiscal recovery at the moment means these costs will be "more unpredictable" than they are usually.

The What Mortgage official went on to say that falling house prices only really have an effect on those looking to remortgage and concluded - in agreement with Mr Gaubauer - that the UK will have low interest rates for "quite some time".

by: Sam Gooch

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