Weak demand sees house prices fall – Nationwide

Nationwide’s Chief Economist Martin Gahbauer said: "House prices fell in July for the first time since February. The price of a typical UK property fell by a seasonally-adjusted 0.5% month-on-month, after having been unchanged in June.

"The three-month on three-month rate of change – a smoother indicator of the near term price trend – fell from 1.7% in June to 1.3% in July, significantly below the peak of 4.0% reached in September 2009. There was also a sizeable drop in the annual rate of house price inflation from 8.7% in June to 6.6% in July, due in part to the strength of house price gains in the same month last year.

"So far in 2010, demand from homebuyers has made little progress in building upon the recovery seen during much of 2009. Despite the introduction of a second stamp duty holiday for the vast majority of first-time buyers and record low interest rates, the number of properties changing hands across the UK is still running at only half the levels seen prior to the financial crisis and recession.

"A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources. Many potential buyers still lack the confidence to purchase their first home or trade up when faced with uncertainty over future income and employment prospects.

"More encouragingly, last week’s GDP figures showed that the UK economy recovered at a faster than expected pace in the second quarter. The 1.1% quarter-on-quarter growth rate seen in April-June was the strongest since early 2006. For the moment, however, concerns about the medium-term impact of fiscal austerity on personal finances is more than
outweighing any potential optimism about the recovery’s short-term cyclical momentum.

"Up until recently, the shortage of buyers in the market was more than offset by an even more severe shortage of properties for sale, with the result that prices rose. Evidence continues to build that this imbalance between supply and demand is easing. The abolition of HIPs has encouraged more speculative sellers to test the market, while some of the excess supply seen in the rental market during 2009 now appears to be making its way back into the sales market as temporary landlords make another attempt to sell their properties.

"At the moment, the market is clearly easing relative to the very tight supply conditions that characterised it since early 2009. However, it will take several more months to establish whether house prices are now simply oscillating around a flat price trend or whether a period of downward trending prices may be in store."

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