London House Prices Plunge as Supply Rise Adds to Lull

London House Prices Plunge as Supply Surge Adds to Summer Lull
As Britain’s housing market struggles to recover, the Bank of England last week announced details of its new lending program aimed at boosting credit to the economy. Photographer: Chris Ratcliffe/Bloomberg

London home sellers cut prices by a record for the month of July as an increase in supply added to pressure on the property market during the traditional summer lull, Rightmove Plc said.

Asking prices dropped 3.6 percent from June to an average 460,304 pounds ($715,600), the operator of Britain’s biggest property website said in an e-mailed report today. Across England and Wales, values fell 1.7 percent to 242,097 pounds.

Property demand weakened in July as bad weather curbed viewings and this month’s London Olympics added to “distractions,” according to Rightmove. As Britain’s housing market struggles to recover, the Bank of England announced details last week of its new lending program aimed at boosting credit to the economy.

“The housing market remains heavily depressed,” Victoria Clarke, an economist at Investec Securities in London, said in a telephone interview. “It fits in with the general backdrop of consumers and households being very nervous about the economic outlook, and if supply continues to come on line, it’s possible we could see further price moves downwards.”

In a separate report today, the Ernst & Young Item Club said that house prices will fall 2 percent this year, leaving them 8 percent below the 2008 peak in nominal terms, and down 24 percent in real terms. The group, which produces forecasts from a model similar to that of the U.K. Treasury, cut its forecast for gross domestic product and predicted no growth this year.

London Falling

In London, part of the price decline may have reflected a tax increase on properties costing at least 2 million pounds, announced by the government in March, Rightmove said. Values in Kensington and Chelsea, the capital’s most expensive district, fell 5.1 percent in July to 2.03 million pounds.

The drop in London follows “several months of fairly heady price increases,” said Miles Shipside, commercial director of Rightmove. “It might just be that the market is finding a price level where buyers and sellers are willing to transact.”

The number of new sellers rose 6 percent in July from June, Rightmove said. The biggest decline in asking prices was recorded in Brent, down 8.9 percent, followed by Kingston-upon-Thames, down 5.8 percent. Hackney and Greenwich were the only districts to record increases. Values in London were up 6.4 percent in July from a year earlier.

“This increase in seller numbers is unusual at this time of year when there is traditionally less buyer activity, and is made even more surprising given the proximity to Olympic distractions and upheaval,” Shipside said.

‘Miserable’ Weather

Nationally, growth in property supply outpaced demand by a ratio of 2:1 due to “miserable” viewing weather, Rightmove said. The Met Office said Britain suffered the wettest June for over a century “followed up by a very wet start to July.”

Of the 10 regions tracked by Rightmove, only one, the West Midlands, recorded a monthly increase in prices in July. Average house values rose 2.3 percent from a year earlier.

With economies around the globe faltering, the European Central Bank earlier this month lowered borrowing costs to a record low, saying some risks to the economic outlook have materialized while inflationary pressure “has been dampened further.” U.S. Federal Reserve Chairman Ben S. Bernanke will address the outlook for growth when he testifies at Congress this week and may hint at possible steps to revive growth.

The yield on Germany’s five-year note fell two basis points today to 0.286 at 11:08 a.m. in London. The euro weakened 0.5 percent to $1.2185. The Stoxx Europe 600 Index slid 0.1 percent.

Euro Area Inflation

Inflation in the euro area held at the lowest since February 2011 last month and imports fell in May, according to European Union reports today. The inflation rate in the 17-nation euro area remained at 2.4 percent, the same as in May, the EU’s statistics office in Luxembourg said, confirming an initial estimate published on June 29.

Euro-area imports fell a seasonally adjusted 0.9 percent from April, while exports grew 0.3 percent, a separate report showed.

Elsewhere, India’s inflation eased in June, with the benchmark wholesale-price index posting a 7.25 percent gain from a year earlier, after a 7.55 percent increase in May, the Commerce Ministry said in a statement in New Delhi today.

Sales at U.S. retailers probably rose in June for the first time in three months, reflecting a pickup in demand for automobiles that outshined spending on other goods, economists said before a report at 8:30 a.m. Washington time.

The projected 0.2 percent gain in purchases would follow a 0.2 percent decline in May, according to the median forecast of 72 economists surveyed by Bloomberg News ahead of the Commerce Department figures.

Other data today from the Federal Reserve Bank of New York are projected to show factories in its region expanded at a faster pace in July. A 10 a.m. report from the Commerce Department may show inventories at U.S. businesses increased.

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