The average UK house is worth nearly 2% less than a year ago, with prices falling for the eighth consecutive month in May.
Data from property research company Hometrack showed a 0.5% fall in house prices during May, preceded by a 0.6% drop in April.
"The current trends in the survey indicate that pricing looks set to remain under downward pressure over the coming months,” says Hometrack research director Richard Donnell.
“It seems likely that in the short term prices will continue to edge down until they reach a level where buyers are prepared to commit.”
Buyers are staying away
Certainly the dramatic decline in the number of prospective buyers has played a key role in the downturn in house prices.
Hometrack noted a 6.7% fall in the number of buyers registering with agents in May, while the time it takes to sell a property has nearly doubled over the past year, from 5.8 weeks to 9.8 weeks.
Furthermore, sellers are achieving just 92.3% of their asking price on average, the lowest level since Hometrack began surveying the industry in 2001.
"The buyers' strike is continuing, with a 6.7% drop in the number of buyers registering with agents over May, following a 2.8% fall over the previous month," adds Donnell.
Wait and see approach
There are a number of reasons behind the sharp decline in buyer demand.
Most notable is the impact of the credit crunch on the mortgage lending industry, which has forced jittery lenders to not only hike their mortgage rates but turn away all but the lowest risk customers as well. Without affordable – and attainable - mortgages, buyer demand is drying up.
Another reason is that many buyers are holding off in the hopes that prices will tumble further in the coming months.
With the Hometrack data showing that prices have fallen over 1% in the last two months alone, it’s clear that waiting even a short while can result in a significant saving.
Gloomy market sentiment
If market sentiment is anything to go by, then the gloom surrounding the property industry is set to deepen notably by year end.
The Royal Institute of Chartered Surveyors (RICS) has revised its house price prediction for 2008 from “stable” to a fall of 5%. That would shave a massive £10,000 of the average house price in the coming months, with RICS predicting a further 2% drop by mid-2009.
Elsewhere, cabinet documents showed that the government is expecting a fall in house prices of 5-10% “at best” this year.
The most startling prediction was made by Bank of England policymaker David Blanchflower last month, when he claimed that prices could plummet 33% unless “drastic action” is taken.
With these predictions in mind, it’s not hard to see why so many buyers are taking a wait-and-see approach.
