The latest House Price Index from the Halifax reveals:
This rate of decline remains significantly lower than the quarterly falls of 5-6% during the second half of 2008. House price data on this basis provides the clearest indication of overall market trends, smoothing out the monthly volatility caused by the reduced number of monthly transactions used to calculate all house price indices.
On an annual basis, prices in December were 1.6% lower as measured by the average for the latest three months against the same period a year earlier. Prices in December alone were 3.4% lower than in December 2009.
Nationally, we expect limited movement in house prices during 2011 but with the risks on the downside. Some modest variations in house price performance across the country, however, are likely. The regional picture is likely to be affected by the impact of public spending reductions.
The low interest rate environment has reduced the burden of servicing mortgage debt. Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in mid 2007 to 29% in the last quarter of 2010. This key measure of affordability is at a better level than the long-term average over the past 25 years (37%) and is an important factor supporting housing demand.
Possible sign of housing market activity stabilising. The number of mortgages approved to finance house purchase – a leading indicator of completed house sales – increased in November following six successive monthly falls, according to Bank of England industry-wide figures.
The number of approvals, at 48,000, was the highest since July on a seasonally adjusted basis. Approvals were 19% lower than a year earlier – 59,000 in November 2009 – due to the ending of the stamp duty holiday on properties between £125,000 and £175,000 at the end of 2009, which boosted the number of approvals during the last part of that year.
Commenting, Martin Ellis, housing economist, said:
"Prices in the final three months of 2010 were 0.9% lower than in the previous quarter. This rate of decline is significantly less than the quarterly falls of 5-6% during the second half of 2008. House prices fell by 1.3% between November and December.
"Looking forward, we expect limited movement in house prices during 2011 but with the risks on the downside. Interest rates are likely to remain very low for some time. This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell.
Current signs that homeowners are becoming more reluctant to sell would, if continued, help reverse the imbalance between buyers and sellers. Nonetheless, uncertainty about the economy, weak earnings growth and higher taxes could put some downward pressure on demand."
Simon Rubinsohn, RICS chief economist, said:
"Data released this morning from the Halifax suggests the property market ended 2010 on a weak note with house prices slipping by 1.3 per cent in December. Although this contrasts with a modest monthly rise signalled in the Nationwide Building Society series, the underlying picture (according to both lenders) is a more consistent story; both indices indicate that prices dropped by around one per cent in the fourth quarter of last year.
"RICS expects this softer trend in prices to persist in the early months of 2011, with demand for property continuing to be adversely affected by the combination of uncertainty over the economy and challenging conditions for first-time buyers looking to access mortgage finance.
"However, by the spring our suspicion is that the drop in supply (new instructions) now evident in the RICS data will begin to provide a floor for the market. Meanwhile, the sharp increase in demand for rental property points to further rises in rents over the course of 2011."
James Scott-Lee, chairman of the Chancellors Group of estate agents, said:
"The December Halifax house price figure will doubtless trigger more doom and gloom. However, while there has been an easing down of prices, as supply has come through and demand has weakened, in certain towns and cities, not least the capital, the right type of property is still commanding the right sort of price.
"Poor quality properties in areas of oversupply are under real pressure but sought-after properties in areas of high demand are still performing well. The headline Halifax house price figure, as a national average, simply does not reflect the regional variations in prices.
"Come the end of 2011, we expect prices in London and the South East to be higher than they are at present, while towns and cities in the north could suffer further price falls."
Philip Clarke, director of property consultants, Fisher Property Services, said:
"The December figure will dampen spirits but we do not expect falls like this to continue throughout 2011. The shortage of transactions during the month of December will also accentuate any price falls.
"During 2011 we are likely to see a further divergence in the the fortunes of the North, South and London. We expect prices in the South and London to be resilient over the course of 2011, with the capital even seeing a marginal increase in prices come the end of the year. But for the North, with its heavy reliance on the public sector and industry, and the geographic dilution of demand, further price falls are almost inevitable.
"With a significant number of people apparently paying their mortgages each month on their credit cards, an interest rate rise would
