Nationwide: UK house prices down 15.9% from last year
The data are in for house prices in the United Kingdom and they are not good. Prices have now fallen 18% from their peak in October 2007 according to the latest Nationwide Building Society survey. They were down a massive 2.5% in December 2008 alone. If you recall, I said November’s survey showed that prices had dropped 13.9% in the year to November, with the losses in December, this number has accelerated to 15.9%- one reason I predicted the United Kingdom will suffer a wave of defaults in the coming year.
The Nationwide Chief Economist Fionnula Earley does know how to put a positive spin on the numbers, though.
“The price of a typical house fell by 2.5% in December, a stark contrast with the modest fall of 0.4% in November. This brings the annual rate of fall over the last twelve months to 15.9%. However the three-month on three-month rate, which smoothes the volatility often seen in the monthly numbers, shows a fall of only 4.2% in December. This is its slowest pace since May 2008.”
Nevertheless, one should note that the fundamentals in the U.K. are much worse than they are in the U.S. Witness the charts that Nationwide released in their press release on house prices to income.
What you should notice is that, despite a correction in house prices and consumer expectations for future appreciation, houses remain extremely unaffordable to the average British citizen. In non-bubble times, mortgages were granted for a maximum of three or four times income. With house prices at 5.5 times average income a steep fall is still in order.
Earley goes on to show graphs that demonstrate housing starts have plummeted and concludes that pent up demand will play a part in the eventual recovery. I would be very cautious about predicting any recovery in housing in Britain. Right now, prices are still too high and the recession is only just beginning to bite.
Below is a BBC article and a video interview with Earley in which she shows a healthy nuanced view of the situation