UK House Prices Fall at Fastest Rate in Over a Decade

Facts

• Last month saw the biggest decline in UK house prices in more than a decade — falling 1.1% in February against the same month last year — according to an announcement from mortgage provider Nationwide on Wednesday.¹
• It was the largest year-on-year drop since November 2012 and came as distinct data from the Bank of England (BoE) revealed British lenders had approved the smallest number of mortgages in January this year since 2009 — excluding a period at the start of the COVID lockdown.²
• With the news, the average price of a property in February dropped £900 ($1082) from the month before to £257,406 ($309,582). Many experts have cited a decline in demand, as fewer UK residents can afford mortgages amid record-high interest rates. According to a recent survey, vendors are currently having to cut their asking prices by an average of £14K.³
• Mortgage rates are still 'well above' the lows of 2021, as stated by Nationwide's chief economist Robert Gardner. 'Economic headwinds look set to remain relatively strong,' he also said, 'with the labor marker widely expected to weaken as the economy shrinks in the quarters ahead.'⁴
• Outside of housing pressures, those living in the UK face rising costs across the board. An analyst from Pantheon Macroeconomics, Gabriella Dickens, has highlighted that household budgets will be further stretched starting in April when the government's Energy Price Guarantee (EPG) increases from £2.5K to £3K.⁵
• Projections vary about how far house prices may continue to decline, with some experts putting the figure as high as 30%.⁶

Sources: ¹Ft, ²Reuters, ³Guardian, ⁴BBC News, ⁵The telegraph and ⁶CNBC.

Narratives

• Narrative A, as provided by CNN. While house prices are currently seeing historic dips as the waves of the catastrophic mini-budget under Liz Truss continue to dissipate, markets should not catastrophize over this data. Some economists have pointed out that the UK is on track to see inflation recede in the second half of 2023 — something that will see momentum and stability return to the economy.
• Narrative B, as provided by Sky news. The only question about the short to medium future of the housing market that needs answering is whether this is the beginning of a gradual deflation or whether the whole system — on which the UK economy is largely based — is about to burst. Even with a decline of just 12% the stability of this sector of the market could be compromised. Economists should not be feeling optimistic about these developments.