In the year before February, both mortgage rates and living costs increased, making homes 1.1% less affordable.
Nationwide says this is the first time property values have gone down in a year since November 2012. Of course, there was a small drop at the start of the pandemic, but that was it.
From January to February, prices also went down by 0.5%.
The building society said it would be diffcult for the market to start again shortly.
The chief economist, Robert Gardner, said that the economy is likely to keep facing strong headwinds, and as the economy shrinks in the next few quarters, the job market will likely worsen.
He also said that mortgage rates were still “well above” what they were in 2021.
The average home price is now £257,406, 3.7% less than in August 2022, when it was at its highest. In January, it was £258,297.
Nationwide says that house prices have been going down every month for the past six months because buyers are having a harder time getting loans because interest rates are increasing.
The cost of living went up quickly, so the Bank of England raised interest rates last year. But this meant mortgage rates were already increasing, which was bad news.
But Liz Truss’s mini-Budget in September caused mortgage rates to go up, which shook the financial markets. Since then, they have gone down, but they are still a long way above what they will be in late 2021, which is more like 1%.
On Wednesday, the Bank of England announced that the number of mortgages approved by UK banks in January was the lowest since 2009. This doesn’t include a drop at the start of the pandemic in 2009.
This is less than the 40,540 mortgages for home purchases approved in December.
When Mr. Gardner looked into the future, he said that from their highest point in August 2022 to their lowest point in December 2022, property prices would drop by 5-6%. Given how hard it is on people’s finances, this is a good way to land.
He did say that the prediction was based on the job market not getting worse than people thought.
Pantheon Macroeconomics said that people weren’t buying new homes because they thought prices would go down even more. The forecaster thinks house prices will fall to about 8% below their peak in the next few months.
It said that mortgage rates seemed to have “hit a floor for now” and that households’ real disposable incomes would be “squeezed again” in April when the government stopped helping pay for energy bills.
It also said that it had “tentatively penciled in a 5% rise in house prices for 2024” because it thinks the Bank of England will start to lower interest rates next year.
Capital Economics said that the fact that house prices fell even more in February would keep people from getting too excited about the news that demand had picked up.
Even though there are more buyers, they can only spend a little on a new home because mortgage rates have increased.
Will house prices continue to fall?
Small changes can happen every month, but Lloyds, the largest lender in the UK, is planning for an 8% drop in 2023.
In November, the OBR told the government that house prices would drop by 9% over the next two years.
People are finding it harder to borrow money because interest rates have changed a lot.
This means that there will be less interest in homes and fewer offers.
People’s ability to pay their mortgages is also affected by how much they pay for energy, how much they make, and how secure their jobs are. So, the economy will determine how house prices change in the future.
When the price of a house goes down, what happens?
People who want to move will be the first to notice a difference.
Some homeowners who want to sell may choose to wait. If a person owns a home and wants to move, they may need more money.
In 2022, fewer homes were sold than in the year before prices went up last summer when stamp duty was temporarily lowered.
But if interest rates stay high, 100,000 people a month will leave their fixed-rate mortgages for new ones with higher rates.
Some homeowners will need more money to afford higher monthly payments, making them more likely to sell their homes.
First-time buyers can get on the housing ladder because homes are more affordable (if they can get a mortgage).
But a price drop can also keep people from moving, making them worry about their money.
At worst, they could end up with negative equity, which means that the amount they borrowed is more than what the property is worth now.
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Because the value of a home makes up about a third of a family’s wealth, falling prices can make people feel less financially secure and cause them to save more than they spend.
If people spend less, the economy will slow down even more.