The Halifax says house prices have fallen 6.1% over the last year. Things are probably going to get worse before they get better.
We heard more bad news on the economy today. House prices are back to where they were in August 2006, and consumer confidence is falling. You might think that the Bank of England's decision to leave the base rate unchanged today was a plus point, but a cut in the near future looks unlikely.
Let's look at the housing market first. UK house prices have fallen 6.1% over the last year according to the Halifax House Price Index and dropped 2% in June.
Predictably Halifax puts a fairly upbeat spin on today's announcement. Chief economist Martin Ellis says:
`A strong labour market, low interest rates and a shortage of new houses underpin housing valuations. Our research shows that the labour market is the key driver of the housing market. Employment is at a record high.'
I'm not as optimistic as Mr Ellis.
For starters, I can't see the Bank of England cutting the base rate for a while yet. After all, the oil price is not far off a record high and food prices are soaring, and the bank's only inflation-fighting weapon is the base rate.
What's more, today's consumer confidence figures from Nationwide were poor. The overall consumer confidence figure fell four points to 61 - a very low figure historically - and only 16% of consumers think their household income will rise over the next six months.
We've also had rotten recent sales figures from John Lewis, Marks & Spencer (LSE: MKS) and several housebuilders. Then this week the British Chambers of Commerce said the outlook for the business sector was `grim and ominous' and warned that unemployment is set to rise by 300,000 by the end of 2009.
Yet Mr Ellis thinks house prices are underpinned by a strong labour market! Surely he knows that employment tends to `lag' in any downturn? In other words, the employment number is normally one of the last to fall.
And even if I'm wrong on employment levels, there's a strong chance that the mortgage market will remain troubled. Only this week, the Council of Mortgage Lenders said that a recovery in the mortgage squeeze is still `some way away'. It will be hard for the housing market to recover if some first time buyers are still struggling to get mortgage offers.
What now?
As I've said before, I think it's important not to panic. Although I'm gloomy about the economic outlook for the next year or two, I know that the downturn will end eventually. The crucial thing is to get through the tough times relatively unscathed.
So it's more important than ever to make sure that you get the best financial products you can. Especially when it comes to your mortgage and any savings account you may have.
And if you're fortunate enough to have spare capital to invest, then it's worth thinking about investing in the stock market for the long-term. Think about buying units in that old Foolish favourite, the index tracker fund. I'm not saying that the stock market hasn't got further to fall -- I'm not sure how share prices will move in the short term -- but I think there's a strong chance that shares will prove to be a good investment over the next ten years.
But what do you think? Let us know in the comments section at the bottom of this article..