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House price growth hits 12-year low
Latest housing market data from the Nationwide Building Society shows annual price growth slowing to a 12-year low - March's 0.6% retreat giving a year-on-increase of just 1.1%. The average price of a home now stands at £179,110, against £179,358 in February.
Noting the lowest rate of annual house price growth since March 1996, Fionnuala Earley, Nationwide's Chief Economist, says a clear change in sentiment since the late summer has led to the sharp slowing in growth, even in the less volatile 3-month on 3-month series. Prices on this measure are now 1.5% lower than three months ago. The price of a typical house in the UK is now £179,110, only £2,027 more than this time last year. Worth pointing out though is that prices are still 11% higher than 2 years ago and 47% up on 5 years ago - the equivalent of a price rise of more than £30 per day.
Earley adds that confidence is a very important factor in the housing market and much of this confidence is determined by expectations of the future path of house prices. When consumers think prices will rise there is a greater incentive to enter the market, thus supporting demand.
On the other hand, if prices are expected to remain static or fall, the urgency disappears and demand will fade. Expectations of higher house prices will have undoubtedly encouraged some speculative demand in the housing market over the years, but with lower house price growth expected now and in the future, the effect will work the other way, causing at least some of this demand to fall away.
"The outlook for UK house prices is clearly more downbeat than at the time of our November forecast. Some of the downside risks we identified then have become a reality - most notably the continued turmoil in the financial markets. However, the path for house prices in 2008 still looks set to remain within our forecast range.
"We expect a modest fall in house prices during the year, but such a fall should be seen in context. If prices were to fall in line with consumers' expectations, they would still be higher than two years ago. A moderate fall in prices at this stage should not be unwelcome and should help to ensure greater stability in the market going forward," says Earley.
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