Slide in house prices is the worst since the Great Depression By Edmund Conway Last Updated: 1:36am BST 11/07/2008
Britain is now in the midst of the worst housing slide since the Great Depression, economists declared after house price inflation dropped to the lowest level since comparable records began.
Halifax figures show house prices have fallen by 8.7pc in the year to June Figures from Halifax, the UK's biggest mortgage lender, showed house prices have fallen by 8.7pc in the year to June, confirming that the property crunch is more severe than the last housing crash in the early 1990s. Hours before, the Bank of England voted to leave rates unchanged at 5pc.
The Halifax figures - which showed prices dropped 2pc last month, following a 2.5pc slide in May - indicate that the scale of the crash now rivals the falls in UK home values in the 1930s. In the three months to June, house prices were 6.1pc lower than the comparable period last year - described by Halifax as the "annual change".
House prices have never fallen by more than 10pc over a year in recorded history, except in 1931, when Britain left the gold standard.
Comment: Rising tide of bad debts will flood over banks More on property David Owen of Dresdner Kleinwort said: "Back then, sterling had been ejected from the gold standard and the currency collapsed, and, although this helped exports, house prices collapsed. What we are seeing now has some parallels with then.
advertisement "However, it is a very unreal situation because this is happening without there being a major recession, and we haven't seen distressed selling, nor a significant increase, yet, in unemployment."
The Bank of England reported recently that the number of mortgages being approved for housing purchases dropped to 42,000 in May - the lowest level since comparable records began in 1993 and down 64pc on the previous year.
No respite for homeowners BoE's next move will be a cut Interest rates: City reaction Alex Vitillo, of Fathom Consulting, said that the downturn was already more severe than the early 1990s, where, according to figures from Nationwide, prices dropped by around 20pc over a number of years.
He said: "As the UK housing market downturn gathers pace, it is common for analysts to argue that this downturn will not be as bad as the early 1990s vintage. It looks like it will be worse, perhaps far worse.
"The decline is far greater and swifter than anything we saw in the early 1990s. Our modelling work suggests that nominal house prices could fall by another 15pc to 20pc from here," he said, adding that there was a risk of even greater falls.
Economists predicted that, with the economy slowing sharply, it may have to cut interest rates by the autumn. Former MPC member Charles Goodhart warned yesterday that with the economy looking "dire", Britain is now facing a recession.
Prof Goodhart, now at the London School of Economics, said: "Output is going to fall, unemployment is going to rise, possibly quite sharply. It's a horrible situation.
"The British economy is getting into quite a recession. I remember when the Queen had an 'annus horribilis,' and this is the annus horribilis for the MPC.
"The third quarter will show no growth, maybe even a marginal reduction in output," he said in an interview with Bloomberg Television. "I think it will last rather longer than is going to be comfortable. The situation looks dire."
Michael Saunders of Citigroup said: "The housing market is probably not even close to the bottom, and sizeable further declines in house prices are likely, not necessarily every month, in the rest of this year and in 2009. In turn, plenty more weakness lies ahead for the overall economy as well."
