Housing boom grinds to a halt

Price rises nationwide come to virtual standstill while value of homes in London falls

Fresh evidence that the housing boom has fizzled out emerges today in the shape of new figures showing that prices have increased nationally this month by just 0.1 per cent.

Fresh evidence that the housing boom has fizzled out emerges today in the shape of new figures showing that prices have increased nationally this month by just 0.1 per cent.

This is the smallest increase in prices for a year and the seventh successive month in which house price inflation has slowed since reaching a peak of 2 per cent back in May. In London, house prices fell by 0.1 per cent this month – their second consecutive decline.

Hometrack, which carried out the survey based on reports from 4,000 estate agents, said the slowdown in prices was driven by a fall in the value of bigger more expensive houses in London and the South-east. In parts of central and south-west London which have seen the biggest rises in the past, prices fell by as much as half a per cent.

The evidence from Hometrack appears to support other surveys showing that house prices are coming off the boil. Last week, Rightmove, which tracks asking prices, said that prices had fallen by up to 3.5 per cent in parts of London while Capital Economics forecast that house prices could tumble by up to 30 per cent.

Soaring house prices are one of the main reasons why the Bank of England has kept interest rates on hold. The Bank has also repeatedly warned that the longer the boom goes on, the greater becomes the threat of a property crash which could affect the rest of the economy.

John Wriglesworth, Hometrack's housing economist, said: "There is no question that the housing market has been slowing over the course of the last six months and this trend is likely to continue into next year. At the top end of the market, London and the South-east, price falls have already started, due mainly to fear of unemployment spurred by the recent spate of City-based job losses."

Hometrack is forecasting that prices nationally will rise by just 4 per cent next year compared with some estimates of a 25 to 30 per cent increase in the past 12 months. In Greater London, it expects prices to fall by 5 per cent.

The Centre for Business Economics and Research also forecast that prices would moderate over the next three years, rising by 6.4 per cent next year, 5.4 per cent in 2004 and by just 0.5 per cent in 2005. But Douglas McWilliams of the CEBR said he found it hard to take predictions of a 30 per cent decline in prices seriously because of the shortage of housing stock. "It is possible that the current gloom-mongering could prove a self-fulfilling prophecy – for a while," he said. "But in the long term supply and demand are key." The CEBR forecasts that there will be an additional 4.2 million homes in the UK in 2020 compared with 2000 with the bulk of the new houses being built in London and the South-east.

According to Hometrack, house prices continued to rise more strongly last month outside London. The hot spots were Devon and County Durham where prices rose by 0.6 per cent and 0.5 per cent respectively and North Yorkshire, the East Riding of Yorkshire and Derbyshire where they increased by 0.4 per cent. The biggest fall was recorded in central London and the City where prices declined by 0.3 per cent.