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December house prices fall despite strong year

5th January 2007 | back to article listings BACK    print this article PRINT

Signs that the Bank of England's double interest rate increase in August and November were beginning to bite have become evident with the news that house prices fell for the first time since June in December.

Prices fell by one per cent last month, according to Halifax, but it is not all bad news for home owners and property investors: prices in the last three months of the year were 4.2 per cent higher than in the third quarter and are running at 9.9 per cent annually, considerably above the long-term average of eight per cent.

Even so, December's fall represents a significant turnaround for a property market that saw average prices increase from between 1.3 and 1.8 per cent from August through to November.

A spokesman for economic research firm Global Insight said that the news came as a "real surprise" but said that not too much could be read into the figure, especially in light of yesterday's Nationwide's survey which reported a 1.2 per cent average rise.

He continued: "Ongoing strong mortgage activity and a shortage of supply in many areas (notably London and the south-east) suggests that house prices could well see further buoyancy in the near term at least as pricing power is currently significantly tilted towards the vendor."

Martin Ellis, Halifax's chief economist, concurred with this view, but insisted that it was a sign that growth would be much more tempered in the following 12 months.

"Continued economic growth, rising employment and an ongoing lack of supply will continue to drive up house prices over the coming months," he said.

"Higher interest rates, greater pressure on household finances and subdued real earnings growth will, however, constrain housing demand. We expect house prices to increase by four per cent in 2007."

The best performers in the second half of 2006 were Greater London, which saw its average prices punch £2,000 above the inheritance tax threshold at £287,176, and south Wales, where prices broke through the £200,000 barrier for the first time.

But without doubt the best UK region for investment for 2006 was Northern Ireland, which recorded the largest regional annual rise since 1988.

Property prices in the six counties jumped by a mammoth 53 per cent in the last 12 months, taking the average price from £128,917 in the last three months of 2005 to £196,874 in the fourth quarter last year, representing a monetary gain of £67,957.

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