British house prices continue to decline

Laura Humble, Bloomberg

The average cost of a home in England and Wales decreased for a 14th month, dropping 0.1% from July to £161,000 (236,223), the lowest since November 2003, a survey by the London-based property website Hometrack showed yesterday. Values slid 3.7% in the past 12 months and will decline 5% in 2005, said Hometrack.

The central bank pared the benchmark interest rate to 4.5% this month after growth cooled in the first half. The nine-member rate-setting committee was divided over the decision, with Governor Mervyn King and three others opposing the cut because of worries inflation might accelerate. The property market has slowed since the Bank of England raised rates five times in the 10 months to August last year to curb a decade-long housing boom.

"House prices have failed to respond to the recent interest- rate cut, and continue their stagnating, negative trend," said John Wriglesworth, Hometrack's housing economist.

"It's a buyers' market."

Edinburgh -based HBOS Plc, Britain's largest mortgage lender, is predicting a 2% drop in house prices this year, after nine years of consecutive increases, it said on July 26.

King said recently that house prices may be affecting consumer spending, which is hurting economic growth. The bank pared its growth forecast for 2005 to 2% on the same day from 2.5% it estimated three months ago.

Inflation was at 2.3% in July, above the bank's target of 2% and at its highest level in at least eight years.

Interest-rate futures trading shows investors aren't expecting any more rate reductions this year. The implied rate on the contract maturing in December closed at 4.46% on Friday, above this year's low of 4.2% on July 7.

The number of new buyers coming onto the market dropped by 0.5%, while the number of new properties coming onto the market increased 2.1%, yesterday's figures showed.

"With fewer buyers and a continued increase in the number of properties coming onto the market, the resulting oversupply means that it is still a buyers' market and prices will inevitably decrease again in coming months," said Hometrack.

Homeowners took eight weeks on average to sell their property, up from 7.8 weeks in July and 5.3 weeks last August, with the average sales price as a percentage of the asking price remaining at 93.4%, the website said.

The only increase in prices was in the east Midlands region.

They dropped in eight regions, with the biggest declines in the south-east and south-west, and were unchanged in Yorkshire and Humberside.

In greater London, the most expensive region, the average cost of a home fell 0.1% to 261,000 pounds.

Hometrack conducted the survey from Aug 1-17, based on reports from 7,500 real estate agents.