Ignore the blips, house prices are falling
We are at the start of what traditionally has been a busy period in the housing market and both buyers and sellers will be looking for succour about their prospects.
Regular readers will be familiar with my bearish outpourings on the housing market - as I am all too familiar with their cries of anguish, outrage and disbelief in response. Over recent months, there has been a fair amount of support for my bearish case from the published data. (At long last, you might say.)
Yet last week the Office of the Deputy Prime Minister (ODPM) announced that house price inflation jumped to 13.8 per cent in November, up from 12.6 per cent in October. And the previous week, the Halifax reported that prices rose by 1.1 per cent in December. What on earth is going on? Has the supposed housing correction already run its course?
Confusing signals
Recent house price data has been stronger than might seem consistent with the story of a marked slowdown - but this impression is misleading. Even the ODPM reported that prices fell by 0.1 per cent in November. It is just that in November 2003 they fell by 1.1 pert cent and as this larger fall dropped out of the year-on-year comparison so the rate of increase picked up.
The news from the Halifax that prices rose in December might suggest a continuing revival but like all the other price series, this data is erratic on a monthly basis. If you look at the three-month on three-month change (which is a much better guide to underlying trends), the message is stark. In May, the figure was 6.3 per cent. It has decelerated in every month since and in December it stood at 0.1 per cent. According to the Halifax, prices have started to fall quite sharply in Wales and by rather less in the South East, Scotland, Greater London, the Midlands and East Anglia.
For anyone with memories of the housing crash of the early 1990s, none of this should come as a surprise. According to the Halifax, prices first started to fall in June 1989 but the Halifax series did not register its first fall on an annual basis until May 1990, 11 months later. Moreover, prices did not fall relentlessly. On the contrary, the monthly numbers oscillated around a falling trend for the next seven years.
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