Housing Market Slowdown Confirmed by Nationwide
In another sign of a slowing housing market, Nationwide Building Society reports average house prices up just 0.6% in the month of August, the annual rate of house price inflation fell to 9.6% down from 9.9% in July. A typical UK property cost an average of £183,898 in August, £16,177 more than one year ago.
Fionnuala Earley, Nationwide's Chief Economist, said, "The expected slowing results from three main factors, each of which have been around for some time. First, weaker affordability, as house prices continue to grow more quickly than earnings; second the effect of higher interest rates and inflation on consumers' pockets; and third lower house price expectations.
"The US sub-prime crisis has created turmoil in international financial markets, but this is unlikely to have a significant additional effect on the rate of growth of house prices in the UK in the short term. We still expect house price growth in 2007 to come in close to the middle of our forecast range of between 5% and 8%."
Most city commentators are also expecting a significant slowdown in the housing market.
Commenting on Bank of England figures which show mortgage approvals steady in July, Capital Economics said, "Mortgage demand has been slow to react to the tighter monetary conditions. However, with new buyer enquiries steadily falling and mortgage lenders tightening lending criteria, we do not expect this resilience to last.
"Although mortgage lending remains steady for now, there are good reasons to expect it to slow in the months ahead. Weaker mortgage demand by the end of the year remains our central forecast."
Separately, investment bank Goldman Sachs notes the planned introduction of Home Information Packs in June resulted in a sharp rise in new instructions ahead of the deadline - a supply distortion to activity that has offset the effect of weaker housing fundamentals.
Other indicators (such as the recent RICS survey) suggest that the housing market is weakening. Goldman Sachs expects housing market activity to fall sharply in early-Autumn as the HIPs distortion fades.
