House prices have fallen for the fourth consecutive month, by 0.5 per cent in February making the average property £179,358.
According to Nationwide's House Price Index for January, the average house set the buyer back £180,473. House price inflation fell to 2.7 per cent as a result, from 4.2 per cent in January, but according to Nationwide's chief economist, Fionnuala Earley, there is still only a "remote risk" of a recession in the UK economy.
The drop "brings the annual rate of house price inflation to its lowest since November 2005." she said, and shows that "The trend in prices is clearly weakening, but the size of the drop in the annual rate between January and February perhaps overstates the rate of cooling as it partly reflects the particularly strong increase in prices in February last year."
The steady fall in house prices, uncertainties in the wider financial markets and a base rate cut of 0.25 per cent this month are all contributing to fears of a recession, but Ms Earley maintains that despite the economic outlook being weaker than it was a year ago, and even without the recent turmoil which resulted in Northern Rock being nationalised, "after a decade of growth averaging almost 3 per cent, it should not be surprising that we are entering a slower phase. It is encouraging that the outlook is one of just that, slower economic growth rather than recession."
She continued to say that while economic growth is expected to fall below trend this year, the Bank of England’s analysis "suggests a recession is very unlikely", even if interest rate cuts are more hawkish than those expected.
While Ms Earley admits that there are several factors which are contributing to a slow down in the property market – such as poor affordability, weakening price growth, and tighter credit conditions – she insists that the overall health of the market will be supported by low likelihood of a recession.
There are other factors at work which are contributing to a slowdown in demand and the knock off effect on the market at large, she says. Competitive mortgage
deals are becoming increasingly hard to come by, particularly first time buyer mortgage
offers, as lenders are hiking their rates and doing away with 125 per cent – and in some cases 100 per cent mortgages – in response to the US sub prime mortgage meltdown and subsequent credit crunch.
Ms Earley concluded: "Overall, it seems clear that we will not see recent rates of growth, in either the UK economy or housing market, repeated for some time. There is currently an unprecedented amount of uncertainty about future economic conditions, but if the Bank of England’s central projection that the economy continues to grow is correct, conditions for the UK housing market are perhaps less gloomy than some would have us believe."
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