Largest house price fall since 1983

Property prices plunged last month but it's not time to panic. yet!

Knowing which way house prices are moving is a national obsession and there is nothing more frustrating than an unclear picture.

During the summer house price indices have offered a hazy view of the market -- up one month, down the next, with different indices disagreeing and no clear direction emerging.

It was the same with the latest figures for September, with two of the biggest mortgage lenders, Nationwide and Halifax, disagreeing about which way house prices are going.

But it was Halifax’s findings that garnered the lion’s share of the press attention, because they were so staggering.

The lender said that house prices fell in September by a whopping 3.6%. That amounts to around £6,000 wiped off the average home in just one month alone. Yikes.

This is the biggest monthly fall since records began in 1983 -- back when Liverpool sat at the top of the league, not in the relegation zone. A long time ago indeed.

But are things really that bad in the housing market, or is this month just a statistical blip?

Behind the headlines

Firstly, it’s important to point out that I’m not suggesting that prices aren’t falling, or that they won’t fall in the future. Clearly, everything is not rosy in the UK house price garden.

But the headline figures do present a very dramatic picture that may not yet be fully justified.

It’s worth remembering that Halifax noted two consecutive monthly rises before this fall. And it is interesting that Nationwide reckons that prices actually rose in September – albeit by a small 0.9%.

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Both indices have been inconclusive over the summer months and this could be because there has actually been very little underlying change in prices.

What is definitely a factor is that, because lending volumes are so low, the figures get skewed a bit.

For example, if you surveyed a million people you would feel that you had a decent snapshot of public opinion, but a survey of five would be far less reliable. Halifax and Nationwide base their house price indices on their mortgage approvals, so when they are lending less, the indices may not be as representative of UK house prices as when lending is booming.

Clear trend

Despite these misgivings about the monthly stats, a clear trend has emerged over the last few months, and it’s a negative one.

Annual growth has slowed according to pretty much all the major indices -- to 2.6% according to Halifax and 3.1% says Nationwide. This is still positive but, to put it in context, Nationwide had annual price inflation at 6.6% back in June, so it’s slowed dramatically.

Other measures are also looking a bit iffy.

Nationwide's three-month-on-three-month index, which is considered a smoother, more accurate measure than the monthly stats, turned negative in September for the first time since May 2009, falling to -0.9%.

It also said that prices were 0.1% lower in the third quarter than the second. Halifax noted prices were down 0.9% over the same period.

After a strong 2009, it’s pretty obvious that the housing market slowed down during this summer, and is still slowing.

Why the slowdown?

There are a huge number of factors that go into the movement of house prices but supply and demand is a big one.

And the balance has swung massively in the last few months in favour of those looking to buy.

In fact, according to the Royal Institution of Chartered Surveyors, prices fell for the third month in a row in September as a result of a flood of properties coming onto the market.

The number of surveyors who saw a rise in new instructions almost doubled to 22%. They put this partly down to homeowners trying to sell now before the economy gets worse.

At the same time more surveyors reported a fall in the number of buyers than those who saw a rise. That’s no surprise really when all eyes are on the big cuts being made by the Government next week in its Comprehensive Spending Review.

Against such an uncertain background, is it any wonder that buyers are feeling a bit reluctant to commit to a property purchase right now? Indeed, with house prices looking shaky, many are simply waiting, in the hope they will be able to get more for their money six months down the line.

Remember that consumer sentiment is a key driver of the housing market. Jobs cuts announced next week and other austerity measures are bound to have a huge effect on confidence, but we should reserve judgement until we know the extent of the coalition’s plans.

Finally, it is vital to point out that the headline figures are averages that hide a massive discrepancy in house price movements up and down the country.

Local picture

In the third quarter of this year, for example, Northern Ireland was the best performing region, with prices rising 1.2%, followed by the Outer Metropolitan area (0.9%) and London (0.4%).

But at the other end of the scale Scotland saw falls of 3.4%, Yorkshire & Humberside of 2.7% and the North West of 2%.

When you look at annual house price performance the differences are staggering, from a rise of 9.2% in London to a fall of 11.1% in Northern Ireland in the last 12 months.

Drill down even further to town and city level and the average figures become even more meaningless. St Albans was the best performing town of the last year seeing a truly astonishing rise in prices of 24%. Sellers there will clearly feel completely different to those in Sheffield, the worst performing city, where prices have fallen 5%.

These figures just go to show that, while the headline house price figures are useful, they may not be relevant to you and your property.

Clearly none of this mitigates the fact that the housing market is fragile. But by next Thursday we will have a much clearer picture of where the wider economy, and therefore property prices could be heading.

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