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UK house prices fall in Nov for second month running

Values down 0.2% from October but housing shortage seen limiting declines

(LONDON) UK house prices fell for a second month in November as a jump in credit costs sapped confidence among buyers and sellers, a survey by Hometrack Ltd showed.

The average cost of a home in England and Wales fell 0.2 per cent from October to £175,700 (S$524,400) following a 0.1 per cent drop the previous month, the London-based research group said yesterday. From a year earlier, prices increased 3.6 per cent, the least since July 2006.

Analysts predict the weakest housing market in a decade next year, with borrowing costs at a six-year high and a slowdown in economic growth after contagion from the US sub-prime mortgage market. The central bank signalled this month that the economy may need at least one interest-rate cut in 2008.

‘The fallout from the credit squeeze, along with relatively high interest rates, is resulting in widespread caution among homeowners,’ said Richard Donnell, director of research at Hometrack. ‘It is hard to see the catalyst for any short-term turnaround in market confidence other than interest- rate-cuts early in the new year.’

Property prices fell the most in the East Midlands, where they dropped 0.3 per cent, followed by Greater London’s 0.2 per cent decline. In central London, home values fell 0.5 per cent, Hometrack said yesterday.

Rightmove plc, HBOS plc and the Royal Institution of Chartered Surveyors have also said that house prices fell this month. Sellers should not hesitate to lower the asking price because a more protracted slowdown is on the way, Rightmove, the UK’s most-used property website, said on Nov 19.

Prices may fall next year as a ‘toxic mix’ of higher interest rates, overvaluation and record debt deters property investors, Citigroup Inc predicted on Nov 9.

A housing shortage may limit a decline in values. Construction of new homes stagnated at 148,000 units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968. The economy is also on course to grow at the fastest pace in three years in 2007, buoying demand for property.

‘Values are being supported by a continued tightening in supply,’ said Mr Donnell of Hometrack. ‘But the underlying market conditions remain weak with new buyer registrations down by 26 per cent over the last five months.’

As US sub-prime-mortgage losses spread to Europe, London banks and investment companies may cut jobs and bonuses, which had helped to fuel house prices over the past decade. Workers in the City, London’s financial district, will invest only £2 billion in homes next year, compared with £5.5 billion in 2007, real estate agents Savills plc said on Nov 5.

Britons are shouldering the highest interest rates since 2001 and have amassed record debt of £1.4 trillion. The US sub-prime mortgage slump has also prompted banks to lift mortgage rates, hurting affordability.

Home loans with a fixed rate for two years, the most popular type in the UK, cost an average 6.37 per cent in interest last month, compared with 5.41 per cent a year ago, central bank data showed on Nov 9.

Bank of England deputy governor Rachel Lomax said last week that there are signs that the slowdown in the housing market ‘is gathering pace’. Economists predict that the central bank will cut the benchmark rate in the first quarter, according to the median of 15 estimates in a Bloomberg News survey from Nov 22.


Source: Bloomberg (Business Times 27 Nov 07)

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