U.K. house prices declined for a second month in a row in January as poor labor market conditions and challenging economic conditions weighed on housing demand, data from the Nationwide Building Society revealed Wednesday.
House prices were down 0.2 percent month-on-month in January, the same rate of decline seen in December and also matched economists' forecast.
At the same time, annual growth in house prices slowed unexpectedly to 0.6 percent from 1 percent in December. The annual rate was forecast to rise to 1.2 percent in January. A typical house costs GBP 162,228, the lowest since February 2011.
Howard Archer, chief UK economist at IHS Global Insight said the data reinforces the assessment that prices are set to fall by around 5 percent in 2012. With inflation slowing markedly, the squeeze on purchasing power will ease, helping house prices to stabilize in the latter months of 2012, he said.
Softening house price growth at the start of the year is not surprising, given the challenging conditions prevailing in late 2011, Robert Gardner, Nationwide's chief economist said. The economist expects demand/supply balance to move further in favor of buyers in the months ahead.
As the economy is not expected to gather much momentum until the second half of 2012 at the earliest, labor market conditions and buyer sentiment may show slow improvement, Gardner noted. The weakness in buyer demand partly reflects uncertain outlook. Affordability also dampened buyer demand.
"With the flow of properties coming onto the market still more of a trickle than a flood, house prices are likely to continue to move sideways or only modestly lower in the months ahead," Gardner said.
The decrease in long-term interest rate provided some relief for borrowers, and in turn improved initial mortgage affordability.
Data published by the Bank of England on Tuesday showed a slight improvement in mortgage approvals. The number of loan approvals for house purchase in December totaled 52,939 compared to 52,628 in the previous month.
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