The U.K. has been a real potpourri of economic surprises lately, with Q2 GDP reported as rising by more than expected last week, a surprise drop in the June trade deficit disclosed at the beginning of August, and the largest drop in unemployment in three years unveiled in early July.
Today, however, we were delivered a negative data point, as home prices fell by the most in 16-months according to Hometrack.
The average cost of a home fell 0.3 per cent from the previous month to 158,200 pounds ($246,000), the London-based property researcher said in an e-mailed statement today. That was the biggest drop since April 2009. Hometrack’s index is based on a survey of 5,100 real-estate agents and surveyors.
“The housing market is in the process of a modest re- pricing that is likely to run for the next six to 12 months,” Richard Donnell, Hometrack’s director of research, said in the statement. There is also “growing weakness on the demand side, a weakness which represents more than just a seasonal blip.”
From a year earlier, prices rose 1.5 per cent, the least in five months, Hometrack said. Demand for homes, measured by the change in new buyers registering with real-estate agents, fell for a second month, dropping by 2.2 per cent.
The supply of homes “has improved markedly and this has reduced the support for house prices provided by the scarcity of housing for sale over 2009 and early 2010,” Donnell said. Prices fell in every region apart from Wales, where they were unchanged, the report showed.
Reading housing data is tricky these days given that current weakness is part of the adjustment process, ie. part of the solution to the past bubble, yet at the same time weakness has a negative effect on people’s wealth and potentially mortgage-backed loans held by financial institutions.
If the housing market, either in the U.S. or U.K., were sky-rocketing again then something would truly be wrong. We don’t want to see people rushing to buy homes like they were before. Yet at the same time further price drops would be detrimental to the recovery process as well. It’s thus as if we want a boring and stagnant housing market as the optimal scenario over the next years… just boring enough to create a healthy adjustment to supply and demand, but not so ugly as to sink the economy.
Business Insider Emails & Alerts
Site highlights each day to your inbox.