The figures also revealed that the annual rate of house price growth in the UK is at its lowest rate since July 1996 and that focus is on interest rates as buyers and sellers reach stalemate.
The annual rate of house price growth was strongest in Scotland and Northern Ireland in the second quarter. London and the South East now have the slowest rates of house price growth in the UK.
Monthly index (seasonally adjusted) Q1 '93 = 100
June: 311.0
(May: 311.6)
Monthly change (seasonally adjusted)
June: - 0.2 per cent
(May: 0.3 per cent)
Annual change
June: 4.1per cent
(May :5.5per cent)
Average price
June: £157,791
(May: £157,272)
Commenting on the figures Fionnuala Earley, Nationwide's group economist, said: "Temperatures soared on centre court, but there is little in the housing market this month to attract attention away from tennis. While the weather was hotting up, house prices in June cooled, falling by 0.2per cent when adjusted for seasonal factors. The trend over the last three months shows the almost horizontal path of price growth this year. Prices in the three months to June were 0.8 per cent higher than the previous three month period. Annual house price growth has now slowed to just 4.1per cent - compared with 19per cent this time last year. This is the slowest rate of growth since July 1996. The price of an average house now stands at £157,791.
"Activity levels too seem to have stagnated. After picking up in the early months of the year, the number of approvals for house purchase increased slightly in May to 96,000. Nationwide expects activity to continue at about this level through the summer. Estate agents continue to report stalemates between buyers and sellers on price and without any economic pressure on sellers to reduce prices at the moment, the stock to sales ratio looks set to rise. This cannot continue indefinitely and price expectations will adjust. There are some early signs of easing but questions remain over timing. When will prices adjust and how far will they have to move? Nationwide’s index shows that affordability is deteriorating, but if interest rates do move south in the Autumn, this will improve and may mean that only small price adjustments will be necessary to bring some liquidity back to the market. But current affordability is not the only factor to consider; uncertainty about the economic climate is also playing a big role.
"Consumer sentiment seems to be the key. Until now, Nationwide’s Consumer Confidence Survey has suggested that consumers have been fairly confident about their current financial position — not surprising with continuing employment growth - but that they are more concerned about the future. This could be in anticipation of tax increases, widely predicted around election time and could also be the major factor behind consumers’ current reluctance to spend on the high street. The most recent surveys, however, show some weakening in current sentiment and this may explain their reluctance to stretch themselves now. Added to this is the volatility in expectations about the direction of interest rates. Just two months ago all the talk was about increases in rates; the situation has now reversed. In such an uncertain climate consumers might just be taking that "wait and see" approach.
"The future path of interest rates is at the top of the agenda. The shift in opinion revealed in the MPC minutes was a surprise, but arguments about whether a move in interest rates is warranted remains finely balanced and is not decisively weighted in favour of the doves yet. Rather like watching Andrew Murray, we will have to wait for another set (of data) to see what will happen. Will consumers hold on or have they run out of steam? What will be the impact of the performance of international players, especially the Europeans and Americans, on British economic performance? The dilemma that the MPC faces is that if it reduces rates now, it could encourage further borrowing, which is precisely the reason why it felt the need to increase rates last year. But if it doesn’t, it risks a more protracted slowdown and all that brings with it. Thankfully, recent stability in the housing market means that it is not a concern to the MPC right now, but the decision at the next meeting on 7 July will have big implications for what happens next.
"Prices cooled across all of the UK in the second quarter. The rate of growth of house prices more than halved in East Midlands, Outer South East, East Anglia and Wales. Scotland and Northern Ireland are now the only areas in the UK where annual house price growth remains in double digits. This is in contrast to the first quarter where eight out of the thirteen regions experienced annual house price inflation above 10% and illustrates how the market is cooling.
"Prices in London were the most stable in the second quarter with an annual rate of growth of 3.5 per cent - only 0.3 percentage points lower than in the first quarter. London and the South Easterly regions now have the slowest rates of growth in the UK, with the Outer South East region having the slowest annual rate of house price inflation in the second quarter at 2.5 per cent.
During the second quarter of 2005 the price of the typical property in the UK increased by £4,746 to reach an average of £158,853. Compared with the first three months of the year, prices increased by 1.2%. This is stronger growth than the last two quarters, but not an indication that the market is picking up, rather it reflects the strength of the market in April due to an early Easter. The movement in the annual rate shows the truer picture. This continued to slow in the three months to June, falling to 6.1% compared with 9.9% last quarter and 19.4% in the same quarter last year. This is the slowest annual rate of growth since the third quarter of 1996.
While prices are still rising, levels of transaction activity, measured by house purchase approvals, have slowed by more than 20 per cent since this time last year and seem to be the key to the direction of the housing market right now. The stalemate between buyers and sellers has meant that stock to sales ratios are now at levels last seen around 1997 and seem set to rise further.
Unlike the last cycle in house prices, this time there has been no significant economic trigger to cause house prices to decelerate. In contrast to the early 1990s, employment and income levels are robust and nominal interest rates have remained low. The economy, while slowing, does not appear to be heading for a recession. Rather, the gentle slowdown in the housing market results from the brakes being applied via the market mechanism, with transaction activity a major factor. As house prices have increased at a rate faster than income growth, affordability has deteriorated. This weaker affordability has impacted on activity and this reduction in demand has led to the deceleration in prices. But, while affordability has been deteriorating sharply since mid-2002, neither activity levels nor house price inflation have responded in a straightforward way.
Looking at turnover levels, which measure activity as a percentage of stock, the data shows how activity responds to changes in affordability. When affordability started to deteriorate sharply from mid 2002, turnover levels took a little while to respond, remaining fairly flat for two quarters before falling back. A small pause in the worsening of affordability in the autumn of 2003, as more competitive mortgage rates became available, was accompanied swiftly by a pick up in turnover to even higher levels. But in Q1 2004 turnover levels fell back very rapidly while affordability continued to deteriorate sharply.
