U.K. house prices extended their decline in January as demand plunged the most in three years on concern about the outlook for the economy, Hometrack Ltd. said.
The average cost of a home fell 0.5 percent from December to 153,600 pounds ($244,000), a seventh straight drop, the London-based property researcher said in an e-mailed report today. Demand, measured by the number of new buyers registering with agents, dropped 9.5 percent.
Bank of England policy maker Adam Posen said last week he sees a “downside” risk to the housing market due to the lack of credit for first-time buyers and “very low” levels of home sales. The U.K. economy unexpectedly shrank 0.5 percent in the fourth quarter and central bank Governor Mervyn King said the recovery will be “choppy” as Britons brace for the deepest spending cuts since World War II.
“Concerns over the economic outlook and the biting reality of spending cuts are doing little to improve a fragile market defined by weak consumer sentiment and a lack of demand,” Richard Donnell, Hometrack’s director of research, said in the report. “It is the change in demand that we need to pay most attention to, as this will have the greatest impact on pricing levels in the first half of 2011.”
The drop in demand this month was the biggest since a decline of 11.5 percent in January 2008. It has fallen by 26 percent in the past six months, according to Hometrack. The number of new homes listed for sale this month fell 5.4 percent, the most in four years.
From a year earlier, house prices fell 2.2 percent in January, and Donnell said prices will remain under “downward pressure” in the short term.
In addition to the weakening recovery, confidence among consumers has been dented by inflation, which accelerated to 3.7 percent in December, eroding spending power. The Confederation of British Industry said today that its retail-sales index fell in January for the first time in three months, with stores expecting further weakness in February.
“Consumer demand is expected to be weak in coming months as the spending power of households is hit by a combination of sharply rising prices and weak wage growth,” said Chief Economic Adviser Ian McCafferty.
The acceleration in inflation has also raised the prospect of an interest-rate increase. While the central bank held its benchmark rate at a record low 0.5 percent on Jan. 13, minutes of meeting showed policy maker Martin Weale joined Andrew Sentance in voting for a rate increase. Posen maintained his vote for more stimulus.
“The prospect of higher interest rates and increased mortgage costs mean that few will be considering moving house,” Donnell said. “In short, demand for housing is, over the coming months, likely to fall further.”
A separate report today from the British Retail Consortium showed demand for labor at retailers fell in December due to “difficult trading conditions in the run-up to Christmas,” partly caused by the cold weather.
The number of hours worked by employees at stores dropped 1.5 percent from a year earlier, the equivalent of 10,300 fewer full-time jobs, the BRC and Bond Pearce LLP said. They also said 38 percent of retailers plan to cut jobs in the coming quarter, up from 13 percent a year earlier.