Reality Bites

New data reveals that property values are continuing to fall nationwide. And sales in London -- arguably the last bastion of the house price bubble -- have seriously started to suffer.

Another round of house price data confirms what most of us already know: property prices are falling.

New statistics from the Land Registry (LR) show that the annual drop in house prices now stands at 10.1%. According to its latest House Price Index, values declined for a fourteenth consecutive month between September and October, with property prices tumbling 1.5%.

Prices are now similar to what they were in summer 2006, with the average home worth £165,529. And while the LR report emphasises that there are regional differences in house price decline (with Wales the worst hit and the West Midlands faring comparatively well last month), it also makes clear: "every region in England and Wales [has] experienced a decrease in their average property values over the past 12 months".

Things could be worse

Indeed, things might get worse. Many economists and commentators are sure we have not yet seen the full extent of property price falls. What's more, things could already be worse than the LR's statistics suggest.

Land Registry data is regarded as among the most reliable available. It's the Government's official measure of house prices, and is considered by the Bank of England when it sets interest rates. However, as The Observer reported on Sunday, there are concerns that the index paints an overly optimistic picture of UK property prices.

The LR excludes repossessed homes and properties sold at auction from its calculations -- a revelation which has sparked criticism of its accuracy, especially with repossessions expected to hit 45,000 in 2008.

According to the Halifax House Price Index, the annual drop in property prices hit 13.7% in October, and the cost of an average home is now as low as it was in October 2005. Meanwhile, Nationwide's latest data indicates an annual house price fall of 13.9%. Both measures point to bigger falls than the Land Registry's statistics suggest.

Has the "Southern bubble" burst?

Another intriguing development in the debate surrounding house prices is the suggestion that the "Southern property bubble" has finally burst.

Up until recently, house prices in many parts of London showed little sign of shifting. In fact, many faithful Fools bemoaned this situation, arguing that the high price of property in the capital skewed national data.

Now it seems house price decline has finally caught up with the big city. According to a report in London's Evening Standard, asking prices for property across the capital have plunged over the past few weeks.

Data compiled by property search engine Globrix, which tracked the actual amounts by which original asking prices were slashed, shows that sellers have dropped the cost of their homes by an average of more than £28,000. And in London's most expensive boroughs, reductions have been even more remarkable: Westminster and Kensington & Chelsea saw average price cuts in excess of £100,000 per property.

Land Registry data confirms that London house prices have begun to slide at a swifter pace. The cost of property in the capital fell 1.9% between September and October, outstripping the national decrease by 0.4%.

Lies, damned lies and statistics

Of course, as Stuart Watson points out in this excellent article, it's impossible to rely on any house price data absolutely.

Nevertheless, reports of house price falls in London could be significant. I believe the city was among the last bastions of confidence in a falling property market -- and I suspect sure some homeowners believed their location made them immune to the factors affecting house prices elsewhere.

As a Londoner, I must say the drops reported by Globrix staggered me. Reading the paper over a cup of coffee last week, I felt as though the inevitable (yet somehow unthinkable) had finally happened.

Reality for buyers

Speaking as a potential first-time buyer, I'll admit statistics like these send a shiver of excitement down my spine. It thrills me to think that buying property in London might, at some point, be achievable.

So what do you think? Do house price statistics represent reality -- or do you think the true state of the housing market is nothing like the picture they paint? And how have falling house prices affected you? Please post your thoughts in the comments space below.

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