New prices fall deepens gloom in the house market

Mortgage lender Nationwide today warned the housing boom is a thing of the past after prices fell for a fourth month running.

The building society said house prices fell 0.5% between January and February, leaving the annual rate of growth at just 2.7% — the lowest since November 2005.

It heaped further gloom on the housing market at the end of a week in which builders such as Persimmon, Barratt Developments and Redrow reported sharp declines in business.

Economist Howard Archer, of Global Insight, said: "House prices are continuing to buckle under the substantial pressure emanating from increased affordability constraints and tighter lending conditions."

Research group GfK NOP, meanwhile, said consumer confidence crashed to its lowest in more than 13 years this month. Even worse, shoppers are more reluctant to splash out on big purchases than at any time since 1990.

Economists expect house prices to fall by around 5% this year, although Nationwide today predicted no change at all. It forecast "slower economic growth rather than recession".

Fionnuala Earley, chief economist at Nationwide, said: "The trend in prices is clearly weakening, but the size of the drop in the annual rate between January and February perhaps overstates the rate of cooling as it partly reflects the particularly strong increase in prices in February last year.

"Overall it seems clear that we will not see recent rates of growth, in either the UK economy or housing market, repeated for some time.

"There is currently an uprecendented amount of uncertainty about future economic conditions, but if the Bank of England's central projection that the economy continues to grow is correct, conditions for the UK housing market are perhaps less gloomy than some would have us believe."

The Bank meets next week to set interest rates, but is unlikely to make further cuts. It has slashed rates from 5.75% to 5.25% since December, but is worried that further reductions will fuel rising inflation.

Earley said: "The performance of the economy is highly relevant for the fortunes of the housing market.

"So while there are several factors which are slowing housing demand, the fact that a recession in the UK seems unlikely provides support for the overall health of the market."