House prices are on the way down even before tax increases and public sector cuts have an impact on the market, according to the latest figures from the Halifax this morning.
Prices fell 0.6% in June to £166,203, the third monthly fall in succession and the fourth in the last six months. The UK average price is now down 1.2% this year and is back at the levels seen last Autumn.
However, the Halifax is sticking to its view that prices will be ‘broadly unchanged’ in 2010 as a whole. An increase in supply is easing upward pressure on prices, it says, but low interest rates continue to support demand.
That’s a view supported by the rival Nationwide index, which shows prices up 3% in the first six months of the year.
However, separate Halifax research show just how much everything depends on low interest rates. The cost of owning and running a home has fallen by 6% or £544 over the last two years to £9,020 a year. But that was entirely due to a 19% (£881) decline in mortgage payments.
If you combine the looming squeeze on disposable incomes caused by tax increases and a public sector pay freeze, rising job losses triggered by draconian public sector spending cuts and warnings that mortgages are becoming harder to come by, the prospects for 2011 are already looking much shakier.
The Nationwide thinks we’re in for a repeat of the 1990s, when prices stabilised after the crash and then stayed in the doldrums for several years.
However, a double-dip recession or an increase in interest rates could trigger fresh falls in prices that still look significantly over-valued against earnings. While there seems little immediate prospect of an increase in rates, the chances of one are increasing. The June meeting of the monetary policy committee saw a member vote for an increase for the first time in almost two years.
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