House Prices Dip As Economy Stagnates

A continuing drought in mortgage lending aggravates an already gloomy economic scenario that is leaving property owners less than eager to sell

. Analysts and economists seem to be one in prognosticating a second house price crash that could linger for the rest of the year.

For the last three months, property prices have been dropping and this August registered a 0.9% drop that followed a 0.5% decline in July. Overall, this has brought a sharp decrease in annual inflation rate which was down to 3.9% in July from a high of 8.7% in June. Last years inflation rate was 9.8%. A typical house in England now stands at around 170,000, based on figures released by the building society Nationwide.

UK houses for sale on the internet show a healthy 30% upswing in prices over the first quarter of 2010 but after the coalition government came into power in May, the Home Information Packs (HIPs) was abolished. To a large extent this adversely impacted on the supply-demand dynamics of the housing industry that saw an increase in property supply that outstripped the demand which had remained stable since the start of the year. Nationwide predicts that house property prices will continue to slip downward over the coming months for the rest of 2010.

Nationwides chief economist Martin Gahbaue points to this increase in the property supply as possibly in response to the abolition of HIPs in the opening days of the new coalition government. With the level of demand remaining broadly stable, this would in part help to explain the recent slowdown observed in the rate of house price inflation.

The bleak prognosis gets affirmed by David Smith, a partner of estate agents Carter Jones, noting that with the abolition of HIPs there have been more houses coming to market over the last few weeks which do not match any noticeable upsurge in buyer demand to match it.

The law of supply and demand dictates that a situation like that is sure to bring property prices tumbling.

What has farther fueled the supply-demand mismatch is a confluence of two other factors an unemployment rate that refuses to go down and the banks continued reluctance to lend.

Mortgage financing of new homes goes to its lowest since March despite a reduction of prime interest rates by the Bank of England which had acted swiftly to stem the debilitating credit drought. The reduced lending rate has not helped at all while banks continue to hold on to their cash and approving loans only to their most trusted and credit-worthy clients.

The director of easyroommate.co.uk, Jonathan Moore, says the current situation is no ordinary blip in the nations economic recovery. There is still a very real mortgage drought. To reignite any progress in the housing market, lenders need to meet the growing demand from wannabe first-time buyers with affordable mortgages. Would-be first-timers are being forced to stay in rented accommodation or live with parents for longer than ever to scrape together enough cash for deposits.

by: Simon Drew

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