The price of a typical home in the UK declined by 0.1% during December, meaning the average home is now worth £162,262. Overall throughout the year prices changed very little, declining by 1%; this reverses the 1% increase seen in 2011.
Despite the lack of activity from house prices, the difference between prices in the North and the South of the country showed an ever-widening gap - with the difference as high as £95,000.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
“UK house prices were little changed in December, declining by just 0.1% over the month, though this was sufficient to keep the annual rate of price growth in negative territory for the tenth month in succession. Over 2012 as a whole, the price of a typical UK home remained fairly stable, declining by 1%, reversing the 1% price gain recorded in 2011.
“Given that the UK economy was in recession for much of 2012 a 1% decline in house prices may be seen as a relatively resilient performance. However, the fact that prices declined even though employment rose strongly, suggests that conditions remain fragile, especially since other signs of housing market activity, such as the number of mortgage approvals, remained subdued, well below their long run averages.
“The outlook remains uncertain. Continued low interest rates and policy measures such as the Funding for Lending Scheme should provide some support. But, with the economic recovery expected to remain fairly weak, the housing market is likely to be characterised by low levels of activity again in 2013, with prices remaining flat or modestly lower over the course of the year.
“How the UK economy was able to generate jobs in 2012 while output remained broadly flat remains something of a puzzle. Why relatively healthy rates of employment growth did not translate into robust house price growth is less of a mystery.
“Although the annual rate of employment growth reached its strongest pace since the late 1990s and the number of people in employment surpassed its pre-crisis peak, household budgets remained under pressure. Wage growth continued to lag behind increases in the cost of living - indeed, in real terms wages fell back to levels prevailing in 2004.
“Moreover, housing still appears relatively expensive on a number of metrics. House prices are still around 5.1 times earnings, above the long term average of 4.2. The monthly mortgage payment on a typical home is currently equal to around 33% of average earnings, close to the twenty year average, even though interest rates are close to all time lows.
“The uncertain outlook for the wider economy is also likely to have kept many potential buyers on the sidelines, unwilling to make such a major financial commitment until they feel more optimistic about the future. Indeed, despite the rise in employment over the past twelve months, consumer confidence has remained well below normal levels.
“While the demand for homes has remained weak, so has the available supply of properties. Thanks to continued low interest rates, the number of forced sales remained low. Together with a dearth of building activity in recent years, this prevented a glut of unsold homes from accumulating on the market. This has meant that although demand and supply were both weak through 2012, they remained relatively well matched, providing little impetus for prices to move strongly in either direction."
“There was significant variation in house price movements across the UK in 2012 (note that regional house price data is compiled on a quarterly rather than a monthly basis).
“Amongst the home nations, house prices in England proved most resilient, declining by just 0.4% in 2012. The typical property in Wales recorded a 2.7% fall, while Scotland saw prices dip by 3.3%. For the fifth year in succession Northern Ireland registered the largest decline in property values, with prices falling by 8.2%, leaving prices more than 50% below their 2007 highs. This is a significantly larger correction than the national average, where overall UK house prices are around 11% below their peak.
“Within England, the North/South divide in property prices continued to widen, with the price of a typical home in the South now around £95,000 more than in the North, a new high and around 2% more than at the close of 2011.
Jonathan Hopper, managing director of the property search consultants, Garrington, commented on the figures:
"With the exception of prime properties, the North/South divide is as pronounced as ever.
In 2013, there's every reason to believe prices of mainstream properties will continue to fall in the North and rise in the South, where the economy is much more stable.
"There will be pockets of resistance around the UK and the capital's unique microclimate should once again see it outperform. Overall, though, expect to see another flat market during 2013 with regional price volatility from one month to the next due to low transaction levels. While the employment market was surprisingly robust during 2012, wage growth was low and living costs high. This dampened consumer confidence and the demand for property, which in turn kept prices low.
"Prices might have been lower were it not for the fact that interest rates are so low, which is preventing forced sales and thus restricting supply. People buy property when it feels right instinctively. For many people, that's just not the case at present. Relatively high levels of employment do not equate to confidence. Confidence is primarily driven by spending power and sentiment and these remain weak in the average UK household. The Funding for Lending scheme is certainly starting to gather momentum but will it be enough to ignite the market?"
Ben Thompson, MD Legal & General Mortgage Club, comments:
“Whilst house prices averaged 1% lower in 2012, effectively negating the 1% rise we saw at the end of 2011, there is hope that over the next 12 months, the outlook will improve.
Although we can predict the housing market will remain broadly flat in 2013, the mortgage market does look set to benefit in the first half of the year from fierce price competition on lower Loan to Value (LTV) products. The number of remortgages we see approved is also likely to increase in 2013.
In the latest report we commissioned in conjunction with CEBR, we examined what the ‘New Normal’ in the housing market is likely to look like, and when it is likely to return. The report predicts that by mid 2013, house prices should start to climb, reaching their 2007 peak of £227,000 by 2015.
This is clearly great news for the economy, but caution is needed as we are not out of the water yet. The Bank Base Rate is unlikely to rise from its current 0.5% in 2013 and unfortunately for First Time Buyers (FTBs), there will still be a lack of suitable property for sale. House purchase therefore looks set to remain quite flat in 2013 and still significantly lower than historical averages. In response to this, the Government needs to increase their focus on building new, affordable homes.
Overall, however, providing there are no nasty surprises, new lending in 2013 should be up on the numbers we saw in 2012 but lenders and the government alike need to do their bit to ensure the housing market really can start to recover from the slump it has seen over the last five years.”
