The
Nationwide Price Index has shown that house prices were down 2.5% in March, the largest month on month decline since Nationwide's records began in 1991.
According to Nationwide's figures, this is the seventh consecutive month where house prices have fallen, the longest stretch of bad results since 1992. House prices are now 4.4% less than at the same time last year.
Fionnuala Earley, Nationwide's chief economist said, "The pace of house price
falls accelerated in May as more weak economic news added to the
gathering momentum of negative sentiment about the housing market."
Monthly data is notoriously volatile, but Earley warned of the potential effect on the Bank of England's interest rate decision next month, stating that although "...it is never wise to place too much weight on one data point, the
apparent speed of the adjustment may lead the MPC to look more closely
at the balance of risks to inflation in the medium term."
Furthermore, "Stronger than
expected inflation appears to have shattered hopes of an early rate cut
in the Bank Rate in June, but more downbeat economic and housing market
data could lead more MPC members to join David Blanchflower in voting
for pre-emptive cuts."
Whilst many have warned of an impending recession, Earley strikes an optimistic note, saying "Current market conditions inevitably lead to comparisons with the last
episode of falling prices. However there are a number of reasons to
believe that today's borrowers are better placed to weather the storm
than in the 1990s."
"Tighter credit conditions in the market at present are making it more
difficult for borrowers to obtain loans at higher loan-to-value ratios.
While this is frustrating for those in that position, more stringent
underwriting criteria should ultimately lead to fewer overstretched
borrowers and hence a more stable and sustainable market." Ms Earley added.