Nationwide study reveals sharpest house price fall in 12 years

29 November 2007
House prices have taken a massive tumble, falling by 0.8 per cent in November and by 6.9 per cent annually, according to the Nationwide November House Price Report marking their biggest plunge in 12 years.

In October, the average house price stood at £186,044, while this month the price has dropped by nearly £2,000 to £184,099.

“House prices fell by 0.8 per cent in November, reversing October’s surprisingly strong performance. This brings annual house price growth down to 6.9 per cent," said Fionnuala Earley, Nationwide's Chief Economist.

"The 0.8 per cent monthly fall is the first since February 2006 and the largest monthly fall since June 1995," she continued.

However, monthly data "can be volatile", says Ms Earley, who warns that the sharp fall this month "is partly a reflection of the strength recorded last month and in November last year," adding that price of a typical house in the UK is still nearly £12,000 more than this time last year.

But she says the data does confirm that the housing market is cooling down. "Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market," she said, and she also pushes some of the blame for the slowdown onto the decision to extend HIPS to all homes. "It is likely to reduce the numbers of speculative sellers which could limit the available supply and make the house search process longer," she warns.

Recent turmoil in the international financial markets, thanks to the sub prime crisis in the US, has clearly had a massive knock on effect in the UK – lenders like Northern Rock and Alliance and Leicester, who fund their mortgages by borrowing from other banks – have been hit hard and, as a result, consumers' confidence in the housing market appears to have suffered.

But, says Ms Earley, it is not all doom and gloom. “Looking forward, it is clear that there are uncertainties in the market, not least from the continuing turmoil in the UK’s financial markets and the overall impact that this may have on the future performance of the UK economy," she said. "We already expect economic conditions to be more difficult for the housing market next year, but we do not expect a recession."

She concluded: "With interest rates on the way down and the continued issue of undersupply of housing in the UK market, the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest."

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