U.K. house prices (UKNBAAMM) may decline in 2012 as economic turmoil emanating from the euro area’s sovereign debt crisis pushes up unemployment and undermines consumer confidence.
The average cost of a home fell 0.2 percent in December from November, the first monthly drop since August, and values may drop “modestly” next year, Swindon, England-based Nationwide Building Society said in an e-mailed report today.
Property demand has weakened this year as banks restrict lending amid the euro-area turmoil and Britons are squeezed by government spending cuts and tax increases aimed at narrowing the budget deficit. Nationwide said the U.K. economy will probably grow less than 1 percent next year and labor-market conditions will “remain challenging,” crimping housing demand.
Today’s report “reinforces our view that prices are poised to fall by around 5 percent in 2012,” said Howard Archer, an economist at IHS Global Insight in London. “Should the euro- zone crisis fail to ease over the coming months or even deteriorate further, this could well lead the U.K. economy to suffer significant contraction, push up unemployment and weigh down on house prices.”
As the euro-area crisis threatens the U.K. recovery, the Bank of England expanded its bond-purchase program (UKAPTARG) by 75 billion pounds ($116 billion) to 275 billion pounds on Oct. 6. The bank also kept its key interest rate at a record low of 0.5 percent. It’s “highly unlikely” policy makers will raise borrowing costs before the second half of 2013 and may keep them on hold until 2014, Archer said.
European stocks fluctuated, with the Stoxx Europe 600 Index heading for its first annual decline in three years, as German Finance Minister Wolfgang Schaeuble ruled out a euro-area breakup. The Stoxx 600 gained 0.2 percent to 242.91 at 10:51 a.m. in London. The gauge has still retreated 13 percent this year, the first decline since a 46 percent plunge in 2008, as the euro region’s sovereign-debt crisis spread.
Global equity markets have lost $6.3 trillion in value this year as the debt crisis and slowing economic expansion worldwide weighed on investor demand for riskier assets.
Data today showed China’s manufacturing contracted for a second month in December as the European crisis cut export demand. A purchasing managers’ index was at 48.7 in December from 47.7 in November, HSBC Holdings Plc and Markit Economics said. A reading below 50 indicates a contraction.
Next year “isn’t shaping up to be much better than 2011, for the U.K. economy or the housing market,” Nationwide Chief Economist Robert Gardner said in the report. “The housing market in 2012 looks likely to be characterized by low levels of activity once again, with prices moving sideways or modestly lower over the course of the year.”
The customer-owned lender’s 2012 forecast tallies with other predictions of falling or stagnating U.K. house prices next year. The Royal Institution of Chartered Surveyors and property researcher Hometrack Ltd. said separately this month that values will fall about 3 percent in 2012. Lloyds Banking Group Plc (LLOY)’s Halifax unit, Britain’s largest mortgage provider, said on Dec. 12 that it saw the cost of a home rising or falling by no more than 2 percent next year.
Berkeley Group Holdings Plc (BKG), the best-performing U.K. homebuilder this year, has benefited by concentrating on London and southeast England, where house prices have been the most resilient. Prices in the capital have been boosted by cash-rich buyers with large deposits taking advantage of cheap mortgage rates and by overseas investors seeking less-risky assets amid financial volatility and political upheaval in the Middle East.
From a year earlier, prices were up 1 percent nationally in December, led by a 5.5 percent increase in London, Nationwide said. The divergence leaves values in London 1.6 percent below a peak reached in 2007, before the start of the financial crisis, while values across the U.K. are 10 percent below their all-time highs in the same year, Nationwide said.
In a separate report today, the Confederation of British Industry said turmoil from the debt crisis is a “significant threat” to the rebalancing of the U.K. economy toward investment and exports.
“The faltering recovery with family and business budgets under pressure and the ongoing crisis in the euro zone are stark reminders of the need to rebalance our economy away from household and government debt,” CBI Director-General John Cridland said in an e-mailed statement. “Rebalancing has to be the right answer for a stronger U.K. in the years ahead.”
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