Commenting, Martin Ellis, chief economist, said: "There was a 2.6% decline in average UK house prices in November. The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand. These factors are major contributors to lower house prices and activity.
Lower house prices, however, mean that a key housing affordability measure – the house price to earnings ratio - is at its most favourable for over five years at 4.56. There are also signs that the pressures on incomes may be beginning to ease. Retail price inflation has started to decline and is likely to fall significantly over the coming months, helped by lower energy prices and weaker food price rises."
The affordability measure of 4.56 compares to a peak of 5.84 in July 2007 and is getting back towards the long-term average of 4.0.
The number of mortgages approved to finance house purchase was broadly unchanged for the fourth successive month in October at a seasonally adjusted 32,000. The recent flattening off in approvals suggests that housing market activity may be stabilising.
Housing demand is constrained by the pressures on householders' incomes and reduced mortgage availability
The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand.
Average earnings increased at an annual rate of 3.3% in September, well below the 5.0% increase in the Retail Price Index (RPI) over the same period, resulting in falling 'real' earnings. At the same time, marked rises in fuel and food prices over the past 12 months - 39% and 10% respectively - have reduced the amount of discretionary income available to householders. (Source: ONS)
There are signs that the pressures on incomes may be beginning to ease
The annual rate of RPI inflation fell from 5.0% in September to 4.2% in October. Modest monthly falls in both fuel and food prices contributed to the decline in RPI inflation. These trends are expected to continue over the coming months.
Housing market activity has fallen significantly in the past year…
Housing market activity has fallen sharply over the past year. The number of completed home sales in England and Wales in August was 64% lower than a year earlier. (Source: Land Registry)
… but there are signs that activity may be stabilising
More forward-looking data from the Bank of England show that the number of mortgages approved to finance house purchase was broadly unchanged for the fourth successive month in October at a seasonally adjusted 32,000. The recent flattening off in approvals suggests that housing market activity may be stabilising, albeit at a low level.
Average UK house price is more than £90,000 higher than a decade ago
The UK average price has returned to the level in July 2005 (£163,445). The UK average house price is 124% higher than ten years ago (73% after allowing for retail price inflation). The current average price is more than £90,000 higher than in November 1998 (£73,129).
