House prices plummet 3.

6% in a
SINGLE month ... crisis for homeowners
as biggest ever fall is recorded
By Daily Mail Reporter
Last updated at 10: 15 AM on 7th October 2010

• But the IMF warns Britain's housing market is

INFLATED and could threaten economic recovery
• Stock market flat as investors wait for Bank of
England interest rate decision
The UK house market suffered a major setback today as figures revealed prices slumped
3.6 per cent in September - the biggest monthly drop since records began.

The Halifax group said an increase in the number of properties on the market, combined
with a drop in demand fuelled by uncertainty over the economy, forced prices down.

Martin Ellis, housing economist with Halifax, said it is too early to conclude that
September's fall represents the beginning of a sustained period of declining house
prices.

He said: 'Looking at quarterly

figures - a better measure of
the underlying trend, house
prices in the third quarter of
2010 were 0.9 per cent lower
than in the second quarter of
2010.
FOR SALE
020 7223 7574
L This rate of decline is significantly
- slower than the quarterly changes
of between -5 per cent and -6 per
cent that were seen in the second
half of 2008.

•. It is therefore far too early to

conclude that September's monthly 3.6 per cent fall is the beginning of a sustained period of declining
house prices.

'A shortage of properties for sale contributed to an imbalance between supply and demand and was a key
factor driving up house prices last year.

'An increase in the number of properties available for sale in recent months has reduced the imbalance. At
the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to
falter recently, dampening the demand for home purchase.
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How the average house price has fluctuated since September 2009 according to Halifax
figaures

Region
Stand:.JrdisecJ
Average Annual
I Change
.201002-
Ind~x Price Chnnge 2000 02 .

~ ~
1983=100
~_________
l £; . % I. % I
I
North ~'"_"" "'_ _._...2..!1..:.1...._.. 129.5~_J.----.1_8 13_1 _.-1
Yorkshire & th~ Humn~r S:J7" 124.0$:;} ] __ 4_3__ 124 i

;-.:.:N~o,;..,:rt;:.;h...:.W,.:..e.:..;5;;..;t~._~__ ~. __ 4.:..;'3;;.;3...:..9;... 123.7131) 1:3 "00

East Midlands :,38A 11.10. 72G- I 5.0 I ,05
'W"''''
•• ~\nl.··'ldJ~"""c 0(:1'1\,.01..... ...'''' "'8".> J, 'IC....4 7~'-'
.,:,..~J. !' . '"
-=+'.' ,--, ~I. i

I:-:::E::::..as::..:t:.,:.A-.::n~l=ta:.-
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_- --16:1-1--1D~
Soutll Wl:st 8 :} 83
South East ----~l /7
renter London
Wales
10 I
108 j 82
m"l
Northern
. Scotland
UK
Ireland

L_
,133 9
543.0 _-l.~,7S&
!~~_12~}2 i=~?.-----~---l
6.3!
£-2

~9 •......J

How House prices shifted across the UK according to Halifax's second quarter report

IMF WARNS UK'S 'INFLATED' HOUSE PRICES THREATEN COUNTRY'S

ECONOMIC RECOVERY

Britain's economic recovery is at risk because its over-valued housing market faces a 'double dip' in
prices, the International Monetary Fund said last nig t.

The IMF warned that the country's house prices are too high and this could lea to people being unable to
meet mortgage payments if interest rates rise.

This, in turn, could affect consumer confidence and the UK's recovery prospects.

'House prices in Britain are still high based on the traditional valuation yardsticks,' the Fund said in its
World Economic Outlook report.
The Fund's top economists said the two-year exemption on stamp duty (a tax paid when housed are
traded) on homes worth up to £250,000 for first-time buyers might not be adequate to prevent sharp
price falls.

'In addition, volatility of the month on month measure has increased due to the low transaction levels
across the market; this underlines the difficulty of getting a clear reading on the current state of the
housin market.

'Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over
the next year, tax rises are on the way and more people are putting their homes on the market. These will
all be constraints on the market, dampening house prices.

'On the positive side, we expect interest rates to remain very low for some time, which will underpin the
improved affordability position for homeowners.'

The figures contrast with statistics reported by Nationwide last week which showed house prices edged
slightly higher by 0.1 per cent in September. Although the monthly data differs significantly, the quarter-
on-quarter decline for the two groups was exactly the same at 0.9 per cent.

Howard Archer, chief UK and European economist at IHS Global Insight, said the Halifax figures are 'at
face value, an absolute shocker' but it is important to put them into perspective.

Mr Archer said the data highlights how volatile housing data can be on a month-to-month basis and it is
best not to attach too much importance to one piece of data.

He said: 'Rather than crash, we expect house prices to trend down relatively gradually over the final
months of 2010 and in 2011 to lose around 10 per cent in value.
'There is however likely to be significant volatility around this gradual overall downward trend.'

Bank of England industry-wide figures recently showed the number of mortgages approved for house
purchase during August fell to 47,372, the lowest level in six months, which economists consider to be
consistent with house price falls. Halifax said low interest rates - currently held at 0.5 per cent - have
improved the affordability of houses.

Economists forecast a fall of 54,000 jobs, but anything much higher than this could trigger a sharp sell-off
after recent hefty gains.

Questions
1. What factors affect the demand for housing? (4 marks)
2. Show explain and show on a supply and demand diagram the impact of the
followinq paragraph:

'An increase in the number of properties available for sale in recent months has
reduced the imbalance. At the same time, renewed uncertainty about the economy
and jobs has caused consumer confidence to falter recently, dampening the demand
for home purchase. (6 marks)

3. Explain two reasons why there might be variations in house prices between
regions. (4 marks)
4. What factors may shape the future direction of house prices in the next few years?
(4 marks)