Robert Gardner, Nationwide's Chief Economist, said, “UK house prices declined for the fourth time in five months in July. This pushed the annual pace of price growth down to -2.6%, from -1.5% in June – the weakest outturn since August 2009.
“The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy. Data released last week revealed that the UK recession intensified in the three months to July, with the economy contracting by 0.7% quarter on quarter.”
Mr Gardner believes that the disappointing figures can be only partly explained by unusually wet weather and the impact of an extra bank holiday during the quarter. He attributes them rather to problems in the UK economy, which has contracted by 1.4% over the past nine months, and is now 4.5 percentage points smaller than it was in Q1 2008.
“Against this difficult economic backdrop, it could be argued that UK house prices have shown resilience,” says Mr Gardner. “While prices are currently 13% below their 2007 peak, this is less than the declines seen in a number of other economies that have experienced similar or more robust economic recoveries."
Olympics boost?
The Nationwide believes that the UK economy is likely to see an Olympics-related boost in the third quarter of 2012. Additional stimulus measures announced by the Government and the Bank of England, it says, should also provide much-needed support for the economy and the housing market in the months ahead.
In early July, the Monetary Policy Committee announced that it would pump another £50 billion into the financial system by purchasing government bonds.
In addition, the Bank of England (in conjunction with the Treasury) announced the introduction of the Funding for Lending Scheme, which begins on 1 August and is due to run for 18 months. This aims to boost the availability of credit to households and firms by guaranteeing the availability, and lowering the cost, of the funds that banks and building societies need in order to do business.
The extent to which the scheme is successful in boosting lending, the Nationwide says, will depend crucially on the demand for credit.
However, with the Eurozone situation deteriorating again in recent weeks, and few signs of a recovery in domestic demand, the lender continues to expect only a modest recovery in the quarters ahead, in both the UK economy and the housing market.
