UK House prices fell at their biggest level for 12 years during November, Nationwide has said.

Nationwide’s analysis of the housing market reports that the price of an average home slid by 0.8% from October - the first drop in price seen since February last year. The price of a typical house in the UK is now £184,099, almost £12,000 more than this time last year.

Commenting on the figures Fionnuala Earley, Nationwide’s Chief Economist, said: “House prices fell by 0.8% in November, reversing October’s surprisingly strong performance. This brings annual house price growth down to 6.9%. This is back in line with the softening trend we have seen in the second half of the year and is consistent with our forecast of house price growth of 5-8% in 2007.

The 0.8% monthly fall is the first since February 2006 and the largest monthly fall since June 1995. However, monthly data can be volatile and the sharp fall this month is partly a reflection of the strength recorded last month and in November last year. A better picture of the underlying trend is captured in the three-monthly growth rate.

This too fell back into line with its softening trend in November, returning to 1.5% from the 1.8% recorded in October. The price of a typical house in the UK is now £184,099, almost £12,000 more than this time last year.”

Main Points
- House prices fell by 0.8% in November, bringing the annual rate of increase down to 6.9%
- Sentiment in the market has weakened, but can be volatile
- Uncertainties remain, but underlying fundamentals continue to be supportive
- Introduction of final phase of HIPs may reduce available housing supply in the short term

Nationwide added that November’s data confirms that the housing market is cooling in line with the weakening in housing market drivers. Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market.

House purchase approvals, a good barometer of real market demand have weakened from a peak of 128,000 a month in the final months of 2006 to 102,000 in September. Nationwide said it expects this activity to continue to fall back throughout the rest of this year, and into the next.

Looking into the future, Ms Earley said: “It is clear that there are uncertainties in the market, not least from the continuing turmoil in the UK’s financial markets and the overall impact that this may have on the future performance of the UK economy. We already expect economic conditions to be more difficult for the housing market next year, but we do not expect a recession.

Furthermore, with interest rates on the way down and the continued issue of undersupply of housing in the UK market, the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest.”

HIPS
On the news of HIPS being extended to all properties from December 14th, Ms Earley said: “It will be some time before the true impact of HIPs on the market becomes clear. The scheme could speed up the process by removing those not serious about moving, but it is likely to reduce the numbers of speculative sellers which could limit the available supply and make the house search process longer.

The final outcome is likely to depend on the importance of speculative sellers in the market, which is difficult to judge. Arguably there will be more of these in a rising market, so the introduction of HIPs at this stage in the cycle may have less of an effect than at other times. But if the scheme does reduce the available supply for purchasers, given existing issues of undersupply in the UK, it is likely to offer ome further support to prices in the short term.”