The house market continued to be depressed during July with a 1.7% fall in asking prices, according to the latest research from the Halifax.

Halifax reported that the average house price in July 2008 was £44,980 (34%) higher than in July 2003 and £104,888 (145%) higher than a decade ago in July 1998. However, the annual rate of house price inflation – measured by the average price over the three latest months compared with the same period a year earlier – was -8.8% in July.

The fall in UK average prices, now at £177,351, means they have now returned to the level where they stood in June 2006.

Main Points
- House prices fell by 1.7% in July. This was smaller than the falls in both the previous two months – May (-2.5%) and June (-1.9%).

- The UK average price is more than one-third higher (34%) than five years ago. The average price in July 2008, at £177,351, was £44,980 higher than in July 2003 when the average price was £132,371.

- House prices in July were 8.8% lower on an annual basis. UK average prices have returned to the level they were at in June 2006.

- The housing market is underpinned by a solid employment market and low interest rates.

Drop in Demand
A high level of average house prices in relation to earnings has made it difficult for potential house purchasers, particularly first-time buyers, to enter the market, Halifax added. The decline in credit availability resulting from the crisis in the financial markets is further constraining buyers. These factors, combined with the pinch on spending power, have significantly curbed housing demand, causing house prices to fall.

However, the labour market, a key driver of the housing market reports better figures. The number of people in employment increased by 61,000 over the three months to May compared with the previous quarter and by 413,000 over the past year to a record 29.59 million, Halifax said.

Additionally, the lender said that it expects interest rates to remain at 5.0% for the remainder of the year. The clear slowdown in the UK economy should curb inflationary pressures over the medium term, eventually providing the Bank of England with sufficient scope to lower interest rates, however the Bank of England is unlikely to do reduce rates whilst the current rate of consumer price inflation continues to accelerate, moving further away from the government’s 2% target.

Suren Thiru, Halifax economist, said:
“House prices fell by 1.7% in July. Pressure on householders’ income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, is constraining potential house buyers’ ability to enter the market. This is resulting in both lower prices and activity levels.

A solid labour market, low interest rates and a shortage of new houses continue to support the market. The labour market is the key driver of the housing market and the number of people in employment is at a record high.”