House prices continued to fall for the 12th consecutive month in October, with the average house worth 14.6 per cent less than a year ago.
According to the latest Nationwide house price index, house prices fell by 1.4 per cent in October – the price of the average house in the UK is now £158,872, which is £30,000 less than in October 2007.
The survey also revealed that house sales have hit a 34-year-slump; "The number of completed house purchase transactions as a proportion of the total stock of mortgages
is now at its lowest ever level since the series started in 1974," explained Fionnuala Earley, Nationwide's chief economist.
"The latest data on the number of weeks taken to sell a property shows that this increased by more than 60 per cent in the last year."
Nationwide's figures show that it now takes nearly 12 weeks to sell a property, compared to just under seven and a half weeks in October 2007.
The survey reveals that it is certainly not a lack of homes that are causing the problems; in fact, data from RICS has shown that during 2008 the stock of properties per agent has been at its highest level since 1998 and house builders are suffering from low levels of interest in new build properties too.
Ms Earley says that tough borrowing conditions are having a far greater affect and until first time buyers can get finance, the mortgage market will continue to suffer.
"If recent actions on the part of central banks help to stimulate mortgage funding this could ease up the cost and availability of finance to borrowers in the higher LTV bands," she said.
"This would be particularly helpful for first time buyers
. The latest data shows there are about 55 per cent fewer than at the same time last year. A return of these borrowers would help to stimulate activity in the market both through their own purchases and by helping others to transact by shortening chains and helping others to complete their purchases."
Speaking about the future of the housing market, Ms Earley said that as the economy weakens further there is likely to be more movement on asking prices as sellers adjust to the prevailing conditions and reassess their own needs.
She predicts that while some people will choose to take their homes off the market, which will reduce supply, others – those who will need to move in order to accommodate job or family changes – will be forced to adjust their prices accordingly.
"So we should expect a moderation of price expectations on the part of sellers in a weaker economic environment," she said.
In conclusion, Ms Earley said that the continuing instability of the financial markets coupled with a looming recession have "uncomfortable implications for the housing and mortgage markets, and will undoubtedly affect the pace of recovery in house prices.
"The speed of the economic slowdown and the determination on the part of central banks to return stability to the financial markets does mean that interest rates are likely to continue to be cut sharply which will make life easier for borrowers on variable rate loans and those coming to the end of fixed rate deals."
Ms Earley predicts that the half percentage point reduction in October "will not be the last rate cut of 2008" and says the possibility of even deeper cuts this year is increasing as the Bank of England "attempts to prevent a deep and prolonged recession."
© Fair Investment