Thursday, November 04, 2004

Halifax data point to end of housing boom (UK)


By Friederike Tiesenhausen Cave, Economics Reporter
Published: November 4 2004 08:59 | Last updated: November 4 2004 11:46

Financial Times

House prices fell 1.1 per cent last month, the Halifax said on Thursday ahead of the Bank of England’s November interest rate decision which is widely expected to result in no change in the cost of borrowing.

The figures by the UK’s biggest mortgage lender are likely assure the Bank that its five interest rates rises over the last 12 months to 4.75 per cent have succeeded in slowing down the housing market.

On a quarterly basis, houses prices fell by 0.4% between August and October, the first fall since the last quarter of 2000, said Halifax, a unit of HBOS. The quarterly fall took annual inflation to 18.5 per cent.

The pace of inflation between the last three months and the three months period before then also slowed markedly to 1.1 per cent. This is slower than in January 2003, when the housing market last cooled ahead of the war in Iraq.

The Halifax data followed figures from the Nationwide building society which showed a 0.4 per cent drop in house prices for October. Both financial institutions base their index on mortgages taken out by homeowners.

Separately, the FT House Price Index, which aims to foreshadow data published by the Land Registry, rose by 1 per cent in October. The FT index is calculated by Acadametrics and takes a snapshot of the housing market at a later stage in the process of property transactions than mortgage lenders.

The index anticipates that third quarter data by the Land Registry will confirm that house prices were still rising during the late summer although the annual growth rate steadily slowed down over the period.

The FT index also showed that the annual rate of price inflation fell from 16.2 per cent in September to 15.0 per cent, which is a lower rate than the indices by the major lenders indicate.

The Halifax’s monthly fall of 1.1 per cent came after a 1.3 per cent increase in September, which in turn was preceded by an 0.6 per cent fall in prices in August.

Martin Ellis, Halifax’s chief Economist, said: “The rises and falls we have seen in prices in recent months are part of the ebb and flow of the market as it finds a new base.”

He added: “We expect house price growth to continue to moderate into 2005 as the Bank of England’s rate increases and first time buyer affordability constraints dampen demand. Market fundamentals remain sound. Interest rates, while they have risen, seem likely to peak close to current levels. Supply constraints, especially in the south of England, will also underpin the market.”

Halifax said there were tentative signs that the ratio of house prices to earnings may have peaked in July at 5.63. The ratio decreased to 5.57 in August (the latest available figure).

The recent series of interest rate increases have raised mortgage payments as a percentage of earnings from 14 per cent to 19 per cent for new borrowers over the past year. But this remains well below the peak of 34 per cent in 1990.

While monthly house price data can be volatile, the recent barrage of softer housing data point to a genuine slowdown in the property market.

Mortgage lending has fallen in recent months and the number of repossession actions between July and September was up 15 per cent on the year before, even though it was still way below figures during the housing downturn of the early 1990s.

Higher interest rates have also taken their toll on the British economy. First official estimates suggested that the economy grew by only 0.4 per cent in the third quarter, composed of a 0.8 per cent increase in services and a 1.1 per cent fall in industry.

However, recent surveys among purchasing managers by the Chartered Institute of Purchasing and Supply published this week indicate that both services and industry are holding up better in the current fourth quarter. Capital Economics, the independent consultancy, predicts that economic growth will reach 0.7 per cent in the fourth quarter.

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