A Horrible Year For House Prices

Last year saw the largest drop in house prices in history, according to the latest data from Nationwide BS. However, there's more to come...

According to the latest data from Nationwide BS, the price of the average UK property fell by almost a sixth (15.9%) in 2008. Alas, the bad news for homeowners is that both prices and the number of sales are likely to keep falling during this year.

December 2008 alone saw a drop of almost £5,400 (3.4%), with a typical home now costing £153,048. This is a drop of more than £29,000 on the £182,080 recorded in December 2007. Worse still, since peaking in October 2007, prices have dived 18%, wiping out roughly £825 billion of housing wealth!

What's more, prices have fallen for fourteen months in a row. This has knocked £33,000 from the value of a typical domestic property, as you can see from the table below:

Using Nationwide's figures, house prices have been rolled back nearly four years, to same level as the happy days of spring 2005. However, in a desperate clutch for straws, Nationwide BS points out that a typical home is worth £17,500 more than it was five years ago!

Of course, property-related firms are so worried about this year that they are running scared. Usually, Nationwide BS, HBOS and the Council of Mortgage Lenders all make house-price predictions in December for the year ahead. This year, for the first time since the last housing crash, all three are refusing to do so.

Sadly, this isn't the end of the matter, because the biggest financial crisis for at least a generation still has a long way to run. The huge losses incurred by reckless lending have left mortgage lenders short of precious capital to lend, leading to government bailouts and part-privatisations of several big banks. This lack of available credit, together with weaker demand for property, has led to a long-awaited crash in housing transactions.

Furthermore, I think there will be great hardship to come for many hard-pressed homeowners. I estimate that we will see an average of 50,000 job losses, 10,000 bankruptcies and 6,500 home repossessions each month during 2009. With the real economy expected to shrink by up to 3% in 2009, this is no time to be borrowing large sums to buy a house. Personally, I will sit on the sidelines for at least another year, waiting to buy a bargain when the market looks stable once again!

More: Try our marvellous mortgage service | From October 2006: Why The Next Housing Crash Will Be Worse | Why We're Obsessed With Buying Property