Forex News Update: U.K. house prices posted their biggest annual drop for more than 15 years in June, dragging the average cost of a home down to a level not seen since August 2006 as the credit crisis continued to sap demand for residential property, HBOS PLC (HBOS.LN) said Thursday.
The leading mortgage lender's Halifax house price index fell 2.0% on the month and 6.1% on the year, the largest annual fall since it dropped 6.5% in March 1993. That compares with a drop of 2.4% on the month and 3.8% on the year in May.
The decline in June was also sharper than the market consensus estimate of a fall of 1.0% on the month and 6.0% on the year in a Dow Jones Newswires survey of economists last week.
Sterling dropped to its day's lows against most major currencies following the data, trading at $1.9754 from $1.9775 prior to the data, while the euro strengthened to GBP0.7962 from around GBP0.7955. At 0944 GMT, sterling was at $1.9734 and the euro at GBP0.7952, as the dollar staged a rebound.
HBOS said demand for houses had been hit by a squeeze on spending power, affordability difficulties due to the rapid rise in house prices in the last few years and the decline in credit availability, but it added that prices continued to be underpinned by sound fundamentals.
"A strong labor market, low interest rates and a shortage of new houses underpin housing valuations," Halifax Chief Economist Martin Ellis said in a statement. "Our research shows that the labor market is the key driver of the housing market. Employment is at a record high."
Although the latest official data showed the U.K.'s jobless rate was 2.5% in May, the claimant count rose for the fourth month in a row in a sign that the labor market is beginning to turn.
HBOS said the standardized average price of a house on a seasonally adjusted basis was GBP180,344 in June, meaning prices were still 196% higher than they were in the trough of the last major housing market downturn in July 1995.
But the latest data are likely to fuel concerns that the weakness of the housing market could weigh on consumer sentiment and the wider economy and also raise the risk of negative equity - where people's mortgage debts exceed the value of their property.
"Indeed, house prices have fallen 8.5% in just the last six months, far weaker than the worst of the early 1990s," Citi economist Michael Saunders said in a note. "Given that the early 1990s was (at that stage) the biggest housing slide (in nominal terms) of the last 50 years, it is fair to say we are now in the worst housing slide for over 50 years."
U.K. residential property sales have slumped and house prices have fallen in recent months as demand has been hit by the tight mortgage market and concerns about the economic outlook. Higher food and fuel prices have also squeezed people's finances.
Even though the Bank of England has cut its main interest rate 75 basis points to 5.0% since December, banks have raised their mortgage rates and reduced offers of housing loans due to the turmoil on financial markets caused by the global credit crisis.
Economists expect the BOE to leave its main interest rate unchanged after its regular two-day policy meeting at 1100 GMT, as it weighs up the impact on inflation from slowing economic activity and soaring food and oil prices.
Tuesday the British Chamber of Commerce warned that the U.K. economy was facing a "serious risk" of a recession and urged the BOE to resist calls for interest rate hikes to curb inflation.
U.K. house builders have been hit particularly hard. Barratt Developments PLC (BDEV.LN) said earlier Thursday that it would cut 1,200 jobs due to the weak property market, just two days after rival Persimmon PLC (PSN.LN) said it had laid off some 1,100 people.
Shares in house builders, such as Persimmon, Barratt, Taylor Wimpey PLC (TW.LN), Redrow PLC (RDW.LN), Bovis Homes Group PLC (BVS.LN), and Bellway PLC (BWY.LN), have fallen as the outlook for the housing market deteriorated.
The following is a table comparing house price surveys by major U.K. housing institutions:
June May
On Mo On Yr On Mo On Yr
Nationwide -0.9% -6.3% -2.5% -4.4%
Halifax -2.0% -6.1% -2.4% -3.8%
Rightmove -1.2% +0.1% +1.2% +2.2%
Hometrack -1.0% -3.2% -0.5% -1.9%
Company Web site: www.halifax.co.uk
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