Falling House Prices in the UK

The state of the UK housing market seems to get as much coverage in the newspapers as just about every topic, bar the latest escapades of Britney Spears driving through a traffic light. From inches of press coverage, it appears that a fall in the rate of UK house price inflation is vastly more significant than a cyclone in Bangladesh, claiming the lives of 10,000 people.

Anyway, the evidence does suggest the housing market is slowing down. With several reports showing a fall in house prices in recent months.

The first thing to be aware of is that statistics can be tricky to interpret. Often headlines may say House prices fall 2%, when what they mean is that the rate of annual house price inflation has fallen from 8% to 6%. Basically, compared to a year ago house prices are still more expensive, it is just that they are increasing at a slower rate.

The main reason for slowing house prices are

• The effect of recent interest rate increases
• Decreasing affordability
• Credit crunch resulting from US sub prime mortgage collapse has increased cost of mortgages and reduced confidence
• Slowing economy
• Shift in confidence and expectations of house prices

According to Rightmove, data showed that the dip in prices during the four weeks to 10 November knocked about £1,656 off the average price of a home in England and Wales, down to £239,986.