House prices plummet

How low can they go? A recent report suggests that housing prices have yet to bottom out – and show few signs of rebounding in the near future.

According to figures released by Nationwide, the average asking price for a property in the UK fell by 1.8% in February. This figure follows the downward trajectory in housing prices from January and December, when property values fell by 1.3% and 2.6% respectively.

Though the drop in prices might help lure potential buyers into the housing market, many of these buyers are having a difficult time obtaining mortgages. Despite a dramatic drop in the Bank of England’s base rate, mortgage lenders are increasingly offering mortgages only to those prepared to pay a large deposit – typically as much as 20% of the housing price.

The report offers little relief to homeowners as well, many of whom have been eagerly awaiting a rock bottom in housing prices. While buyers are holding out for even lower prices, many homeowners are hoping for a quick boomerang in prices once they’ve hit their lowest.

Fionnuala Earley, Nationwide’s chief economist, echoes concerns about the troublesome lack in consumer confidence among property buyers, saying,

“Sharp cuts in interest rates have helped affordability, but have not yet affected housing market confidence sufficiently to boost the levels of new transaction activity or slow the pace of house price falls.”

Though Earley suggests that the continued drop in prices could help pique buyer curiosity, she cautions that a further decrease in interest rates is necessary in order to resuscitate the ailing housing market;

“Further cuts in rates will be welcome in the housing market, but the economic conditions that require them will mean that there is unlikely to be a swift turnaround in the housing market in 2009.”