Are UK house prices really heading for a double dip recession? It seems the possibility is getting closer when you learn that property prices have depreciated by nearly a third in real terms since their peak in 2007.
The latest house price index from the Halifax shows an average decline of 1.4% last month. The year on year drop was 3.7% and since the peak of 2007, house values have now dropped by 20%.
In August 2007, the average price of a home in the UK was £199,612. The Halifax index shows it was £160,395 last month. That’s a drop of £39,217! If you take inflation into consideration, the drop is more like 30% and analysts predict a further decrease of between 5% and 7%.
So where do we go from here? Interest rates will eventually start to rise and when they do activity will probably be depressed further leading to a continuing decline in prices.
A lot of analysts expect the Bank of England’s Monetary Policy Committee to start the ball rolling with a modest 0.25 percentage point increase. This in itself would not add a vast amount to the average variable rate contractor mortgage monthly repayment.
However, once interest rates start to edge upwards, buyers might start to remember pre-recession interest rates and high mortgage costs. And first time buyers who are already struggling to get a foot on the housing ladder could find themselves priced out of the market completely.
It seems like the housing market is going around in a vicious circle at the moment. The situation has to normalise eventually, but will it come too late for the current generation of young adults?
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.
