The annual rate of house price inflation at 3.1%, down from 3.9% in August and 6.6% in July, according to the building society. The three month on three month rate of change – a good indicator of the near term price trend – fell from 0.0% in August to -0.9% in September.
This represents the first negative reading for the three month rate of change since May 2009 and is consistent with the clear loosening of housing market conditions observed over the summer months
Martin Gahbauer, Nationwide's chief economist, said: “Although the three month rate of change has turned negative, at this stage it is not pointing to a significant pace of decline in property values.
“During the 2008 downturn in house prices, the three month rate of change dropped as low as -5.5%, well below the current level of -0.9%. Nonetheless, buyers appear to have a slightly better hand than sellers at the moment, as the market continues to absorb the recent increase in property for sale.
“Where house prices go next will depend on whether the strong flow of new property onto the market continues into the autumn, and on the extent to which existing sellers are willing to compromise on their asking price in order to make a quicker sale.
“Many of the new sellers who have marketed their properties may indeed be speculative sellers testing the market in response to the price gains seen since early 2009 and the abolition of Home Information Packs (HIPs).
“If this is the case, and there is little urgency to sell for financial or other reasons, then prices may remain more or less stable, albeit at the expense of market activity. The housing market would then be characterised by a stalemate situation with low levels of liquidity and little change in house prices. If, on the other hand, most of the new sellers in the market are keen to sell more quickly, then the recent slight downward trend in prices may continue.
“Developments in the labour market will also be a key determinant of housing market performance.,” he said.
Recent news from the labour market has been mixed. On the positive side, growth in the number of people in employment reached a record 286,000 in the three months to July, though the majority of the new jobs created were part-time rather than full-time.
Gahbauer added: “One consequence of the increasing share of part-time employment is that average earnings growth has remained weak, falling well below the rate of inflation. While this has helped employers to limit recession-related redundancies, it has also contributed to denting consumer confidence in the outlook for future incomes, an important factor to consider when deciding whether or not to buy a home.
“Given the combination of a still elevated unemployment rate and the upcoming public sector wage freezes, it seems unlikely that earnings growth will accelerate much in the near future. While this will continue to help companies limit job losses, it will also continue to constrain confidence in future incomes among potential homebuyers.”
Nick Hopkinson, director at Property Portfolio Rescue, said he expected house prices to fall over the next few months.
He said: “Overall mortgage lending continues to fall according to all the recent analysis and reports. The ‘mortgage famine’ is set to continue for the foreseeable future, despite record low interest rates remaining.”
But David Smith, the senior partner at property consultancy, Carter Jonas, was more sanguine, saying: "The latest Nationwide statistics are further proof that the market is stabilising, not collapsing. The market is being buffeted by a constant stream of negative and positive variables, both economic and confidence-based.
"Stock levels continued to rise in September but demand, overall, is becoming weaker, which will place downward pressure on prices. Despite turning negative, we do not expect the three month rate of change to herald sharper declines to come.”
And Richard Sexton, business development director at e.surv, added: “The market is still very delicate at the moment. Prices certainly aren’t going to skyrocket while people are mulling over the potential impact of the austerity measures the chancellor is planning.
“The good news is that even the IMF thinks the British economy is on the mend. With the country passing its annual health check with flying colours, such assurances from heavyweight commentators and respected international bodies should bolster domestic confidence and reinforce prices in the medium term.”
