House prices down 16.2% in 2008

House prices fell 2.2 per cent in December, as the property slowdown looks set to continue into 2009.

The Halifax house price index shows a 16.2 per cent drop in house prices over 2008 – with the average home how worth £159,896, the level last seen in April 2003.

Halifax managed to gain some positives from the dismal figures, as the level of decline is at least stabilising – dropping 5.2 per cent in the final quarter of 2008 and roughly matching drops of the previous two quarters.

Martin Ellis, Halifax chief economist, predicted further housee price drops in 2009.

“Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months,” he said.

“But a number of factors will help to support demand and should help to limit the downturn.

“Improving housing affordability and an easing in the pressure on the majority of households’ finances should support market activity and prices. The house price to earnings ratio – a key affordability measure – is at its lowest for five and a half years.”

Halifax also claims UK consumers are better prepared to face the recession than in the 1990s.

The percentage of home owners with mortgages reporting payment problems is now around half the levels seen in the early 1990s, and levels of mortgage arrears and repossessions – although rising – are at low levels compared with the early 1990s.

“The Halifax reported that house prices plummeted by a further 2.2% in December, after plunging by 2.7% in November and 2.4% in October. Consequently, house prices were down by 16.2% year-on-year in the three months to December. Furthermore, house prices were down 18.9% year-on-year in December itself,” said Howard Archer, chief UK economist at Global Insight,

“This is a sharper drop than was seen in the early 1990’s housing downturn.”

He added the outlook for the housing market remains bleak with a further 15 per cent drop in house prices predicted for 2009 and the first half of 2010 should see a further five per cent drop.

This would put house prices at the end of the down turn at £129,116 – 35 per cent down on the peak of the market and at the same point as mid-2003.

“Even if government measures to get banks to step up their lending increasingly take effect, it will clearly take time for confidence to improve and mortgage lending to pick up significantly,” Mr Archer said.

“These factors are likely to continue to outweigh the beneficial impact of lower mortgage interest rates resulting from the Bank of England slashing interest rates, particularly as it is still very difficult to get a mortgage.”

Halifax itself is not publishing a house price prediction for 2009 due to its merger with Lloyds TSB.