House prices plunged 3.4% last year - The Press Association

(UKPA) – 1 hour ago

Economists have maintained their gloomy forecast for house prices during 2011 after figures showed property values dropped steeply during December.

The average cost of a home fell by 1.3% during the month to stand at £162,435 as buyers continued to stay away from the market, according to Halifax. The latest fall, which was bigger than economists had anticipated, left house prices 3.4% lower than they started 2010.

Halifax pointed out that the quarter-on-quarter measure of house prices, generally seen as a smoother indicator of market trends - had registered a drop of just 0.9%, well down on the quarterly falls of 5% to 6% seen during the second half of 2008.

The group said it expected only "limited movement" in house prices during 2011, although it admitted that the risks were on the downside, and there would be some "modest" regional variations, particularly in areas which were likely to be impacted by Government spending cuts.

But economists were less optimistic about the prospects for the market, with some continuing to pencil in double digit price falls for the coming 12 months.

The current weakness in the housing market has been caused by a mismatch between supply and demand, as concerns about the outlook for both the housing market and the wider economy cause consumers to put their moving plans on hold, while those who want to press ahead with a purchase are continuing to struggle to raise the mortgage finance they need.

There are also concerns about the impact an interest rate rise would have on the market, if the Bank of England's Monetary Policy Committee was forced to raise the base rate sooner than previously expected due to inflationary pressures.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The 1.3% drop in house prices in December and overall decline of 0.9% quarter-on-quarter in the fourth quarter of 2010 reported by the Halifax is fully consistent with our view that house prices will trend down gradually overall to lose around 10% from their peak 2010 levels by the end of 2011."

Paul Diggle, property economist at Capital Economics, said: "With the pressures on house prices still building, we anticipate that prices will fall considerably further into the red this year. With houses still overvalued, and the economic fundamentals of the housing market weak, we think that it's entirely plausible that prices at the end of this year will be up to 10% lower than they are at present."

Martin Ellis, Halifax housing economist, said: "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."

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