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Eurozone crisis hits house price growth expectations

Friday, 16 December 2011 2:08 PM

Concern over a house price drop is growing as a result of the UK's economic woes, according to the latest house price sentiment index (HPSI) from Knight Frank/Markit.

Over 20 per cent of households said that their property fell in value during the month, while only seven per cent reported a rise.

The HSPI figure for December is 43.3, down from 44.7 in November, indicating that house prices are falling faster than they were last month.

This latest news comes in the wake of widespread fears about the potentially catastrophic effects of a further deterioration within the Eurozone, coupled with George Osborne's gloomy autumn statement.

Gráinne Gilmore, head of UK residential research at Knight Frank, said: "This month's data is a stark reflection of the deterioration in the UK economy.

"Public sector workers have been more pessimistic about the direction of house prices than those in the private sector for most of the last two years, given the large-scale public sector cuts.

"But those in the private sector now share the view that prices may not rise next year and are closer in their outlook to public sector workers than at any time since February 2009."

The picture for house price expectation is very different across the UK, with London occupying its customary position of optimism ahead of the rest of the market.

The East Midlands (53.4), the East of England (50.7) and the West Midlands (50.4) are the only other regions with a positive (above 50) HSPI reading.

However, Yorkshire saw the biggest rise with the future HPSI reading rising from 38.6 to 49.

Households in Scotland and the South East saw the biggest drop in positive sentiment, with HPSI readings falling from 57.3 to 47.9 and 56.1 to 48 respectively

Those in the North East are the most pessimistic about the house price outlook with a score of 40.9.

Chris Williamson, chief economist at Markit, said: "With unemployment hitting a 17-year high and job insecurity rife as job losses look set to mount in 2012, house sellers are likely to outnumber buyers for some time to come."

"Whether or not the rate of house price decline gathers pace in 2012 depends very much on the economic outlook and, in particular, the Eurozone’s financial crisis."

Williamson pointed to two ways a worsening of the Eurozone's position may affect the UK: "First, the UK would face an increased risk of being dragged into a double-dip recession, hitting demand for houses.

"Second, potential damage to the banking system via a credit squeeze would stifle the availability of mortgages."

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