The latest Halifax index  was published last Friday and showed a decline in March of 1.7%. Whilst this appeared to contradict the Nationwide index   published the day before (which showed a 0.90% rise in March), the longer (and more statistically robust) quarterly trends are both showing that the rate of house price decline is slowing. For HBOS the seasonally adjusted (SA) quarterly decline was -2.7%, down from -5.5% in Q4 2008 and Nationwide SA Q1 figures were -4.20% down from -4.70% in Q4 2008.  Whilst the numbers may differ, the trend from both is clear. House price declines are slowing.

Whilst monthly figures may hide trends and some may argue that one quarter’s results do not yet provide enough evidence that we are ‘turning the corner’, we are firmly of the view that the latest house price figures combined with increasing mortgage approvals   and an increase in the number of mortgage products , does provide evidence that we are now past the worst.

Rapidly falling prices have the tendency to create a self-perpetuating downward spiral, in that lenders become reluctant to lend at higher LTVs, exacerbating the issue by creating a mortgage supply shortage. However, as and when prices falls slow, two important factors start to combine:-

1.    The risk lenders are taking in lending above 75% decreases making lending here (relatively) more attractive, so increasing availability of funding; and

2.    Buyers who have largely kept out of the market, particularly FTBs, are increasingly likely to return bringing greater stability to the market as:-

·         They realise that price falls may be reaching the end stages and property prices and affordability are at historically low levels; and

·         Those who may have held off buying as the finance was unavailable will find this problem easing

Predicting property prices is as much as an art as a science given the large role of sentiment and confidence. As these factors are almost impossible to measure, we have always looked at the hard facts and these continue to tell us that prices and affordability are now almost back at the long term average, a position that hasn’t occurred since the latter half of 2003. This doesn’t mean that property prices won’t fall further, but our view is if they do, prices will be falling below their ‘true’ position and the subsequent ‘risk’ of a bounce back is increased. If sentiment does play a role, we detect that the atmosphere on house prices is changing from negative to cautiously optimistic. We are not out of the woods yet, but Q3 this year still remains our view as to when prices broadly stabilise.