House prices dive

The Nationwide Building Society has reported that house prices have fallen 2.5% during May, which is the biggest fall ever reported by the Building Society since it started creating reports back in January 1991.

This takes the run of months in which house prices have dropped up to 7 months, the longest continuous run of house price falls since 1992. This leaves house prices down 4.4% on what they were this time last year, the biggest annual fall also since 1992.

This brings the price of an average house in Britain to £173,583 - a fall of almost £5000 over the month and £8000 over the year. But even with these falls house prices are still up 5% over the last 2 years and 10% over the last 3 years.

Howard Archer, chief UK economist at Global Insight, said: 'The plunge in house prices in May is a real shock, and will fuel concern that we are now headed for a sharp correction.

'The downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is increasingly biting. It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009.

'Clearly, a sharp housing-market correction would add to the already serious risks to economic growth, particularly through weighing down on consumer spending.'

More house price falls

A report revealed today that house prices in England and Wales have fallen for the 8th month in a row. The report from Hometrack showed an average fall of 0.5% over May, following a fall of 0.6% in April. Looking at a year on year basis, the annual house price growth rate fell from 0.9% to a drop of 1.9% - the lowest level recorded since Novermber 2005, when a drop of 2.5% was recorded.

Richard Donnell, Hometrack's director of research said: 'What we referred to last month as the 'buyer's strike' continues with a 6.7% drop in the number of buyers registering with agents over May.'

'It is too early to say whether the level of monthly falls will now start to moderate as this will require an improvement in demand and sales agreed which are both linked to overall buyer confidence.'

'The current trends in the survey indicate that pricing looks set to remain under downward pressure over the coming months.'

The report also reveals an increase in the time taken to sell a house. This is now 9.8 weeks, up by 3 weeks over the last year. This follows a repositioning last week by the Council of Mortgage Lenders, who changed their forecast of a 1% growth in property prices to a 7% fall combined with a 35% decrease in property sales this year.

Mortgage Crunch Easing

Observers are hoping that the first signs of the end of the mortgage crunch may have arrived with positive news from lenders regards mortgages. Nationwide Building Society has cut its fixed rate mortgage products by up to 0.3% whilst Abbey has cut up to 0.17% off its fixed rates and 0.05% of tracker mortgages in its ranges.

And after pulling out of mortgages for new customers at the beginning of last month, HSBC-owned First Direct will again start plying for new trade by offering mortgages to new customers.

First Direct stopped accepting new applications after it said it had received 5 times the normal number of applications, but it has now cleared the backlog and is ready to take more new applications, for those with at least a 20% deposit.

But many lenders are still only offering top rates to those able to put down a 20%, or even a 25%, deposit on their purchase.

Louise Cuming, from price comparison site Moneysupermarket.com, said: 'This is welcome news in an otherwise hostile market place. First Direct's original stance - made at the start of April - was reflective of a cautious attitude towards the market as a whole. The reversal of the decision demonstrates a growing confidence in the market.

'The news that First Direct is reopening its doors comes hot on the heels of Abbey and Nationwide cutting mortgage rates last week and HSBC extending its rate matcher offer. The clouds over the mortgage market are starting to clear, much to the relief of borrowers across the country.'

House sales could collapse by 40%

The latest survey from RICS (Royal Institution of Chartered Surveyors) has revealed that house sales could collapse by 40% this year.

The impact of this would hit the economy, as firms providing services to movers struggle for sales - such as carpet retailers, white goods, DIY stores etc. RICS warned the number of house sales could plunge by around 400,000 to approximately 600,000 with the second half of the year bein a 'difficult period for the housing market'.

Whilst a collapse of the housig market might be seen as good news for first time buyers trying to get onto the property ladder, these people are also struggling to get loans as the number of available different mortgage products has dropped by around 56% over the last 6 months to just 16,000.

House prices could tumble 10%

A government blunder has revealed that 'at best' property prices are expected to fall between 5 and 10% this year.

Caroline Flint accidentally revealed a briefing note on her way to this week's Cabinet meeting. It was headed 'Caroline Flint - speaking notes' and contained a summary of what the minister told Mr Brown, Mr Darling and other Cabinet colleagues.

A sticker on the document said 'Papers for Cabinet meeting 13 May 2008'. The briefing said leading house price indicators were predicting reductions for the first time in recent years and warned : 'We can't know how bad it will get. Given present trends, they will clearly show sizeable falls in prices later this year - at best down 5%-10% year on year.'

Surge in inflation

A massive surge in inflation has been reported from 2.5% to 3% caused by rising gas & electricity bills and food prices and Budget tax increases on alcohol and tobacco. Although only just released, the Bank of England's monetary policy committee did have access to this data when it met last week and decided to hold interest rates. The committee's aim to to keep inflation around 2% and never allow it to creep above 3%. City economists had been expecting a report of 2.6%.

The result of this is that another rate cut is highly unlikely. Back in October when inflation crept to 2.1% analysts thought it unlikely that there would be any further base cuts before spring.

When they next meet, the monetary policy committee will have to work out how to balance rising inflation against the reports from RICS yesterday of a record low in house sales.

Savers who are watching their savings dwindle in the face of increasing inflation will be hoping that the next rate announcement will be for a rate rise, but there is no guarantee that a rise in interest rates would have any effec on high street prices.

Lowest House Sale Rate on Record

Estate agents are reporting they are selling less homes than at any point since current records began, back in 1978, according to a report from the Royal Institution of Chartered Surveyors (RICS).

House prices are also showing the biggest falls since RICS started recording them, 30 years ago, making the current crisis worse than the property crash of the '90s, at least on paper.

82% of the 282 estate agents that took part in the RICS poll recorded falling house prices over the last 3 months. Between February and April they sold on average just 18.3 properties, with one reporting sales down by 60%. Even Scotish House Prices recorded a drop last month, meaning that all regions of Britain are now experiencing price falls. The worst hit area is the East Midlands, having suffered 16 straight months of decline.

It has also been noted that the number of buyers registering an interest to buy with estate agents is also down and has been sliding for 2 years. Estate agents blame mortgage difficulties, saying that buyers looking for "perfectly normal loans" are being rejected.

June rate cut in doubt

The City was expecting the Bank of England to cut interest rates from 5% to 4.75% next month, having left them unchanged last week. But the price of goods leaving British factories in April up 7.5% over the last 12 months, the fastest rate of price growth since records began in 1986. It came as manufacturers faced a record 23.3% jump in input costs, with crude rising more than 60%, food over 30% and fuel more than 20%.

City economists described the figures as 'appalling' and 'truly horrible' for the Bank of England. This is likely to drive the official rate of inflation over the Bank's 2% target, possibly even breaking 3% and remaining there. This will limit how much the Bank of England can reduce interest rates.

Howard Archer of Global Insight said: 'The April producer price data are truly horrible and very worrying indeed for the Bank of England.

'It highlights why the Bank was unwilling to enact a back-to-back interest rate cut last week, and raises serious questions as to whether the Bank will be willing to cut interest rates from 5% to 4.75% as soon as June, despite current signs that the economic downturn may be deepening and widening.

'For now at least, we still expect the Bank to act in June, but it is by no means a gimme.'

People want house prices to fallhouse prices

A BBC-commissioned survey has found that 28% of respondents wanted house prices to drop against 22% who hoped for an increase in house prices. And giving an indication that crash fears may be misplaced, almost two-thirds of respondents said a fall of more than 10% in house prices would not negatively impact on their household spending.

This survey follows a series of gloomy data from the mortgage industry. In April average house prices fell by 1.3%, according to the Halifax. It contributed to the first 12 month house price drop since February 1996.

Level house prices or a fall in prices could help hard-pushed first-time buyers who have struggled in recent years to get onto the property ladder with ever increasing prices. It could also help those hoping to move up a level in the future, as the steps between the house prices narrows. Fears of the impact of a sizeable fall in house prices appear to be less pronounced than with the '90s property crash.

More than 60% said a drop of more than 10% would make no difference to their spending plans or make them likely to spend more. That compared with 38% who said it would make them more likely to cut back.

Interest Rates On Hold

The Bank of England has, as predicted on Monday, announced that it will hold interest rates this month, following last month's rate cut to 5%. There was intenst pressure for the rate to be cut another 0.25% to 4.75%, but the monetary committee were concerned over the threat of rising inflation.

Whereas this is good news for savers, householders with mortgages will be disappointed that there is not another potential cut in their repayments.

At the same time, the European Central Bank kept interest rates at 4% to counter its worries about inflation on the Continent.

Experts are predicting a cut next month, with mixed views as to har far the cuts will continue this year - possibly taking the base rate down to 4.5% or even 4% by the end of the year, with the most optomistic expecting further cuts to 3.75% over the next 9 months.

No interest rate cut???

Following last month's rate cut where the banks did not all follow suit, is expected that the Bank of England will not cut rates this week. This is because Sterling is falling on the currency markets:

'Sterling represents one of the inflation risks,' said George Buckley, chief UK economist at Deutsche Bank.

'We have seen a long period of lower prices thanks to cheap imports and a strong pound. That is now coming to an end.'

As Sterling weakens, the pound buys less an dputs the price of imported goods up, increasing inflation. But some economists do predict a rate cut, saying that it will come soon, so why not sooner than later?

Halifax House Price Drop

A report by the Halifax agrees with the report from Nationwide earlier in the weekin showing that house prices have dropped in the previous 12 months.

It is the first time in over 12 years that a drop in house prices over a year has been reported by the Halifax, with an average 0.9% drop since last April, taking the average house price to £189,027. The last time they reported an annual house price drop was February 1996.

Halifax chief economist Martin Ellis said: 'We are expecting a modest decline in house prices in 2008, and there is a strong chance that will continue into 2009. House prices are high in relation to earnings so there is a problem for people entering the market, and there is a general squeeze on spending as well.'

This news piles on more pressure to the Bank of England to cut interest rates, although many lenders have still to pass on rate cuts since last month's rate cut, with some lenders actually increasing rates since the cut.