New homes in the US changed hands at their lowest price in four years during September, official figures showed.

The median price of a new single-family home was $218,400 (£141,870) according to the US Commerce department.

Sales were up 2.7% on the previous month, beating economists’ predictions, although total sales for the month were 33% below last year’s figures.

The boost follows news of the biggest monthly gain in five years for existing US homes sales in September.

Foreclosures

The median price of a new home in September was 9% less than it would have cost last year – and at its lowest level since September 2004 – when house prices were rising rapidly during a five-year housing boom.

The unexpected rise in new home sales followed a 12.6% drop in month-on-month sales in August, after a 3.6% rise in July.

September’s sales were actually down 21.4% in the north-east of the US, and 5.8% in the Midwest.

But the overall rise was fuelled by a 22.7% rise in sales in the west and a 0.7% rise in the south.

Meanwhile, the number of unsold new homes, which stood at 394,000 at the end of September, remains near historic highs, bolstered by a large number of US home foreclosures adding more properties to the market.

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House prices will not get back to the levels they peaked at in 2007 until 2013, the Centre for Economics and Business Research (CEBR) has predicted.

The group also forecast that prices would fall in value by 25% from their peak to a trough at the end of 2009.

It would mean an estimated 2.5 million homeowners could face negative equity.

The predictions of UK house price falls are similar to those made by the chief executive of the Nationwide Building Society, Graham Beale, last month.

The price drops have been welcomed by some who argue that many were priced out of the market when prices rocketed.

Predictions

If proved correct, the prediction from the CEBR would mean the value of the average home would have dropped to £157,058 by the end of 2009.

“Now that the financial crisis turns into an economic crisis with rising unemployment and falling household incomes, we could see house price falls starting to accelerate again” Ben Read, CEBR

Persimmon’s prices down 10%

That represents a decrease in value of about £50,000 from the peak in the housing market a year ago.

Prices are expected to be broadly flat in 2010, before rising by about 20% during 2011 and 2012, the CEBR forecasts.

In an interview with the BBC last month, Nationwide chief Graham Beale said he was not expecting any signs of a recovery in the market until 2010. He also said the pattern of price falls next year would be similar to this year.

The Council of Mortgage Lenders recently claimed that any short-term prediction of house prices was “futile” before there was clarity after the recent volatility in the market.

But the lenders’ group also joined an emerging market consensus that prices would continue to fall until the end of next year. Other lenders are expected to give their forecasts for the coming year in November and December.

Mortgage drought

The CEBR suggested that the lack of will among banks to lend to each other, and therefore to homeowners was a key factor in determining house prices.

Mark Baker from propertyfinder.com expects house prices to recover

“Confidence in the housing market has been shattered as lack of mortgage availability has left few sellers chasing even fewer buyers, and expectations of falling prices have become embedded,” said Ben Read, managing economist at CEBR.

“Now that the financial crisis has turned into an economic crisis with rising unemployment and falling household incomes, we could see house price falls starting to accelerate again.”

But he argued that this would be offset to some degree by “aggressive cuts in interest rates”, at least some of which would be passed on to homebuyers.

The next decision on interest rates by the Bank of England’s Monetary Policy Committee is scheduled for next week, although the possibility of co-ordinated moves by central banks has again been mooted.

The rescue package for the banks would also start to free up lending, and Mr Read suggested that this would help transactions to rise sharply in 2010.

Waiting time

Nearly a third of UK properties for sale have been on the market for more than six months, and 12% have been unsold since the start of the year, according to property search engine Globrix.

This was seen the most in Aberystwyth, where 70% of properties for sale had been on the market for more than six months, followed by Merthyr Tydfil (62%), Rochdale (52%), Shrewsbury (49%) and Oldham (48%).

In the major cities, 41% of properties for sale in Liverpool have been without a buyer for more than six months compared with 25% in Bristol.

“Mortgage finance is a lot tougher to secure and many sellers still are not dropping their prices to realistic levels. They are in 2008 but have a 2005 mindset,” said Daniel Lee, of Globrix.

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UK house prices registered a 1.3% fall in September, according to the Halifax.

The lender said the drop meant the annual fall now stood at 12.4%, with the cost of the average home in the UK now at £172,108.

It joined the Nationwide in claiming that the rate of decline was starting to stabilise when looking at three-month comparison figures.

But it said the state of the market would remain “challenging” as mortgage availability was still tight.

The annual rate is calculated using a comparison of the past three months compared with the same three months a year ago, aiming to cut out any short-term volatility.

When comparing prices in just September with the same month the previous year, the drop in prices reaches 13.3%, the biggest recorded by the Halifax.

September was the eighth consecutive month that prices fell compared with the previous month.

Rate cut

The average price of a UK home is close to that seen in January 2006.

“The ongoing pressures on householders’ income, combined with the reduction in the availability of mortgage finance mean that market conditions will remain challenging,” said Martin Ellis, chief economist at the Halifax.

But he welcomed the move by the Bank of England’s Monetary Policy Committee to cut interest rates by half a percentage point to 4.5% on Wednesday.

“Lower interest rates will help mortgage borrowers faced with increasing pressures on their finances and provide a valuable support to the housing market,” Mr Ellis said.

Stabilising?

Prices declined by 5.2% in the third quarter of the year, close to the 5.1% fall of the previous three months. This was evidence that the pace of decline was stabilising, Mr Ellis said.

But with food and fuel prices having risen over the last year, and wages failing to keep up with the increase, households had less discretionary income.

“The resulting pinch on incomes, combined with the high level of average house prices in relation to earnings, has made it difficult for potential house purchasers to enter the market,” he said.

Others agreed that the pace of decline could stabilise soon.

The year-on-year falls in house prices should hit a maximum of 15% next month and fall no further, according to Ray Boulger, of mortgage brokers John Charcol.

Prices were still rising up to October last year, before the effect of the credit crunch hit. As a result the year-on-year comparisons have been striking in recent months, he said. He said the Halifax figures were “not surprising”.

But Howard Archer, chief UK and European economist at Global Insight, said he expected house price falls to continue.

“Faster rising unemployment, heightened concerns over the economic outlook and widespread expectations that house prices will continue to fall markedly seem set to depress housing market activity and prices for some considerable time to come,” he said.

Banks hesitant

Despite hopes that Wednesday’s rate cut will spur lending and boost the housing market, banks have been slow to pass on previous rate cuts to new and existing borrowers, as they continue to scale back lending.

The latest Bank of England figures show the average mortgage rate paid by new borrowers rose from 5.88% in August 2007 to 6.1% in August 2008 despite a three-quarters of a percentage drop in the Bank rate over the same period.

The average mortgage rate for those with existing mortgages has dropped from 5.91% in August 2007 to 5.83% to August 2008, although it has fluctuated during the year.

These cuts made by the Bank of England’s Monetary Policy Committee have benefited existing borrowers, mainly those on tracker rates.

Earlier this month, the Royal Institution of Chartered Surveyors reported that completed property sales in August were 47% lower than in the same month a year ago.

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The fall in house prices has accelerated in England and Wales, according to the Land Registry.

Its latest report shows that prices fell by 1.9% in August, taking the annual rate of price deflation to 4.6%.

The figures mean that the average property now costs £174,493; £8,320 less than a year ago, with £3,871 of that drop occurring last month.

Prices in London fell by 3.2%, the first monthly fall since the Registry started publishing its figures in 2000.

Two months ago the Land Registry was suggesting that prices across England and Wales were, on average, still 0.1% higher than a year ago.

But with prices falling sharply in August, its monthly survey is starting to catch up fast with the surveys of lenders such as the Halifax and the Nationwide who have both reported that prices are down by 11% in the past year.

“Today’s data from the Land Registry confirmed that house price falls are gathering momentum,” said Seema Shah at Capital Economics.

“With transactions less than half of their level a year ago, coupled with the fact that the outlook for the economy is steadily deteriorating, the speed of this housing market correction still has the potential to step up a gear.”

Falling sales

Both the monthly and annual falls recorded in August were the biggest so far seen by the Land Registry, whose figures are based on prices actually paid at completion of the sale.

All regions now have prices that are lower than they were a year ago, with the biggest fall being 6.7% for the East of England and the smallest drop that of 2.5% in North West England.

Looking at smaller areas, prices have fallen fastest in Denbighshire, down by 6.7%, but have risen by 4.8% in Hartlepool, the biggest annual rise of any county or local authority area.

As well as prices, transactions have been falling sharply too.

In June, the last month for which the Registry has complete data, sales were 56% lower than the year before at just over 54,000.

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Trying to predict the short term course of house prices is “futile” at the moment, says the Council of Mortgage Lenders (CML).

In its latest fortnightly review, the CML admits that its prediction of a 7% fall this year, made in May, has become rapidly outdated.

It says the property market is unlikely to recover from its current slump before 2010.

Both the Halifax and Nationwide say prices have fallen 11% this past year.

“Our May prediction of a 7% correction now looks wide of the mark, but trying to update that is now futile,” said Bernard Clarke of the CML.

Volatile conditions

The outlook of many participants in the property market has changed rapidly this year, as they have been caught out by the most sudden downturn in sales and prices in the past 60 years.

At the start of 2007 many experts were forecasting that prices this year would stabilise or possibly rise very slightly.

But the mortgage drought, brought on by the worsening international credit crunch, has made even updated forecasts look rapidly out of date.

At the start of this month Andy Hornby, the head of HBOS, which owns the UK’s largest mortgage lender the Halifax, said he thought that sales and prices would not recover until 2010.

And Graham Beale, the chief executive of the Nationwide, revealed that he thought prices might eventually fall by 25% from their peak a year ago to their eventual trough.

Mr Clarke of the CML said that expectations of such a large drop in prices now appeared to be an industry consensus for the course of 2008 and 2009.

“In current volatile conditions we need greater clarity before updating our forecast,” he said.

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UK housebuilder Barratt Developments has reported a steep fall in profits as the property slump begins to bite.

The firm, which is cutting more than 1,000 jobs, said profit before tax totalled £137.3m in the year to 30 June, down 68% from a year earlier.

But Barratt said in light of “the extremely challenging market”, the results were satisfactory.

The firm said its average selling price had risen 6% because of high-value sales in upscale London locations.

“There is little prospect for any material improvement in trading conditions until mortgage finance and customer confidence return,” said the firm’s chief executive Mark Clare.

Barratt, like many housebuilders, is suffering as both house and land prices fall.

Barratt was forced to write down the value of its land and work in progress by £208.4m, following a fall in prices.

The firm also sustained £15.9m of reorganisation costs, including redundancies, however this figure did not include the costs related to the 1,200 jobs cuts announced in July.

“Given the performance of the business for the full year and the board’s view on the outlook for the current year, no final dividend for 2007/8 will be paid,” it announced.

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The slump in the UK property market continued in August, with some estate agents selling fewer than one home per week in the past three months.

The Royal Institution of Chartered Surveyors (Rics) said sales were at their lowest level since its monthly survey started in 1978.

It said the fall in prices slowed, for the fourth month in a row, but they were still much lower than a year ago.

Rics said the continued shortage of mortgage funds was “stifling” buyers.

Mortgage famine

“A lack of mortgage liquidity is the key issue which is keeping the housing market from showing any real sign of recovery,” said Rics spokesperson Jeremy Leaf.

“While money is scarce, many will continue to be denied the next step on the property ladder.

“The Government’s stamp duty policy will not be enough kick start transactions,” he warned.

Meanwhile, the head of the Nationwide Building Society told the BBC that he expected house prices to fall by 25% from their peak last autumn.

Graham Beale also said he does not expect to see signs of recovery in the housing market until 2010.

The weakness in the housing market is being exacerbated by the sharp slowdown in the UK economy.

Unemployment is rising, growth is falling, and retail sales are weak – with the British Retail Consortium reporting that sales have been flat throughout the summer.

The past 12 months have seen an unprecedented collapse in home sales and prices since the property market, both here and in the US, was struck by the credit crunch in the financial markets.

Ripples from the crisis have spread throughout the world, with house prices falling sharply in many other European countries.

According to Rics, the average estate agent in the UK sold just 12.7 properties in the three months to the end of August.

That meant sales were running at levels 47% lower than in August last year.

And with the market normally quiet in August anyway, estate agents have seen interest even from predatory buyers “stagnate”.

The only glimmer of optimism in the Rics report was that the number of estate agents reporting a rise in new instructions was only slightly outnumbered by those reporting a fall.

However the number of new enquiries from potential new buyers fell again, and at a faster pace than in July, suggesting that the market may stagnate further in coming months.

“Falls in enquiries took place across all regions in England and Wales,” Rics said.

Cheaper mortgages?

The cost of borrowing has in fact been coming down in the past couple of months for some new borrowers, especially those who can afford to put down a deposit of at least 25%.

Banks and other lenders have found it cheaper than before to raise mortgage funds on the wholesale financial markets and have been passing this on to their most favoured customers.

Of the 12 largest mortgage lenders in the UK, 10 have cut the cost of their two or three-year fixed rate deals in the past two weeks.

The latest example came from HSBC, which yesterday cut the cost of all its fixed rate mortgages by between 0.46% and 0.72%.

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UK house prices have seen an annual double-digit fall for the first time since 1990, according to the latest survey from the Nationwide.

Prices were 10.5% lower in August than they were a year ago. Prices fell by 1.9% compared with July.

The average home now costs £164,654, which is more than £19,000 cheaper than the average price one year ago.

Gloomy forecasts from house builders mean the market is likely to remain subdued, Nationwide says.

The Nationwide survey found that house prices have fallen for 10 months in a row and are at their lowest level since early 2006.

Fixed-rate favour

Data from estate agents suggested “there may be some glimmers of interest returning to the market” as some buyers were taking the opportunity to secure large discounts, said Nationwide’s chief economist Fionnuala Earley.

“The extent to which [an interest rate fall] will revive the mortgage and housing market is likely to be limited while overall confidence in economic and housing market conditions is low” Fionnuala Earley, Nationwide

Gloom over house price figures

But she said that an increased supply of properties on agents’ books would continue to act as a dampener to house price growth in the short term.

House builders were pointing to a loss of consumer confidence for the continued slowdown, the report said.

And Ms Earley added that the lack of availability of mortgages was still pushing down house purchase activity.

“There is clearly less mortgage borrowing taking place in the current market, but those borrowers choosing a new loan are tending to opt for fixed rate loans, even though they have been more expensive than trackers,” Ms Earley said.

First-time buyers

Earlier this month, figures from the Council of Mortgage Lenders (CML) suggested that the slump in mortgage lending continued in July.

Total lending stood at £24.8bn, up by 5% from June, but still 27% lower than a year ago.

First-time buyers, who would normally benefit from falling prices, have struggled to obtain cheap mortgage deals without a large deposit.

However, the cost of fixed-rate mortgages has been falling in recent weeks with a series of lenders cutting their interest rates.

Ms Earley said the “gloomier feel” of the economy in general, as well as rising food and fuel prices and a lack of confidence with jobs made people more prudent with their borrowing.

She said that prices, that were still higher than five years ago, were likely to keep falling this year as there remained a lot of uncertainty in the market.

She added that the situation would not turn around very rapidly unless there was a significant change in consumer sentiment.

Rate cuts

The door was open for interest rate cuts by the Bank of England, she added, but this in itself would not turn things around.

“We expect the next move in the bank rate to be down, but the extent to which this will revive the mortgage and housing market is likely to be limited while overall confidence in economic and housing market conditions is low,” she said.

The picture is not completely the same across the UK. Although the Nationwide figures take an average from across the country, Ms Earley said the Scottish market was proving more resilient than most areas.

Northern Ireland, in contrast, was experiencing higher than average falls.

Henry Pryor, who runs property website primemove.com, said that markets were affected by local factors.

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Until recently, house prices had been on a seemingly unstoppable upward spiral.

Property had become the asset of choice for both private and professional investors.

But then the credit crunch hit.

House prices across the UK and elsewhere around the globe went into free fall.

Investing in property is now the preserve only of the very brave, the very stupid or the fabulously rich.

Super rich

At the top end of the market properties are still changing hands for many millions of pounds.

These high-end properties exist in a market climate all their own and for many buyers and sellers the odd 10% rise or fall in the asking price for these hard to find homes hardly makes a difference.

For the super rich the cost of one house hardly matters, as they are more than likely to own portfolios of properties around the world.

What is being bought is a way of life.

“The marketplace is all about buying a lifestyle,” says Jonathan Hewlett of high end property consultants, Savills.

“We have had many sales over $40m” William Zeckendorf

“Wealthy people come to London or already exist in London, they want to buy properties like we go to the shops to buy a suit or a tie and the thought of having to wait six months or three years is too much for them.

“Time is money to most of them – it’s find something that’s ready, let’s go for it.”

Mr Hewlett has been in the business for nearly 25 years, watching the market’s ebbs and flows, and has seen how things have changed.

“When I started you counted on your fingers the number of £1m – and I mean £1m properties – now the market goes up to £100m.

“There are certainly quite a few sales that I have been involved around £50m.”

Hot properties

In New York the high end goes up to sky-scraping levels as well.

Fifteen Central Park West is one of the newest residential properties to spring up for the super wealthy of Manhattan.

It boasts private wine cellars, its own library, a private cinema screening room, and a chef on call 12 hours a day.

William Zeckendorf is one of two brothers who developed this site and he seems quite pleased with the way sales are going.

“The apartments start at approximately $5m (£2.5m) and how high do they go? You can use your imagination but we have had many sales over $40m,” he said.

“We’re sold out now so we sold $2bn of apartments in about two years.”

These are not small flats either so many residents decide to buy extra space to house their staff.

“We have three floors of maid suites – those are all about 600 sq ft (56 sq m) – there are some that are a 1,000 sq ft (93 sq m) and those were sold out immediately,” he added.

In case you are interested, the staff quarters will set you back anything from £1.2m to £2.4m.

A name that is synonymous with luxury housing in New York is Donald Trump, and his son Donald Trump junior has followed his dad into the family trade.

He has not noticed any downturn for prestige properties.

“The places where we are producing best are actually in our very large units – we sold a unit in Trump World Tower for $39m.

“We have an apartment in Trump Park Avenue for $45m and those are the things that are seeing the most interest, because as the economy waxes and wanes, there still tend to be people in that top one percentile.

“For them it’s almost irrelevant, meaning they’re not affected by the sub prime crisis – they are not worried about getting a mortgage.

“If they want, they close on their apartments,” he added.

Solid foundations? If it’s only one of your properties… it may well be that you can get through an economic cycle

Michael Dicks, Barclays Wealth Management

But can this buoyancy in the top of the market really last?

At Barclays Wealth Management, Michael Dicks says that buying at this level of the market might be a way to hedge one’s bets against the worst of the cyclical downturn.

“It’s difficult to know for sure, but probably you have more insurance, if you like, buying at that end of the market, so it’s not so much of your wealth.

“It’s part of your investment portfolio, but it’s not a huge part.

“I think for most people, losing your job means that you struggle to meet your mortgage payments, and as a result the housing market is very sensitive to the economic cycle.

“If it’s only one of your properties – or only a part of your portfolio – it may well be that you can get through an economic cycle without missing out on those payments that you owe.”

The difference between the rich and the super rich has become more pronounced in the past decade, so it is not surprising that the difference in the properties in which we live would be more pronounced as well.

It seems that if you have the money to live at the top of the housing ladder you can sleep easily knowing your property investments probably are as safe as houses.

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The house price slump continued in July according to the latest monthly report from the Halifax.

The lender said prices fell another 1.7% last month, taking the annual rate of decline up from 6.1% to 8.8%.

The Halifax said this took the average house price down to £177,351, the value last seen in June 2006.

The bank said demand from home buyers had been “significantly curbed” by the lack of mortgage funds, high prices and the squeeze on household finances.

“Pressure on householders’ income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, is constraining potential house buyers’ ability to enter the market,” said the Halifax’s economist Suren Thiru.

“This is resulting in both lower prices and activity levels,” he added.

The Halifax’s survey, which suggests prices are falling at their fastest rate since 1992, chimes with that of rival mortgage lender the Nationwide.

The building society recently calculated that UK property prices had fallen by 8.1% in the year to July.

However, using a comparable methodology to that of the Nationwide, the Halifax’s figures would have shown an even greater fall, of 10.9%.

Falling fast

In June, the Halifax forecast that house prices would probably fall by about 9% over the course of this year.

However, figures from the lender indicate that price falls have already exceeded that, falling by 10% in the first seven months of the year alone.

The fall in the past 12 months was less than that only because prices rose in August and December last year.

With mortgage approvals already down by 69% in the past 12 months, activity in the property market looks likely to fall even further.

“With transaction activity at a new low and likely to fall further in the wake of the uncertainty surrounding HM Treasury’s comments on stamp duty, it is hard to see any near term relief on prices,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.

Many commentators suggest prices could easily fall by about 20% in the course of this year and next.

The credit ratings agency Standard & Poor’s (S&P) suggested recently that a fall of this magnitude might push 1.7 million households into negative equity.

Negative equity describes a situation where the size of borrower’s mortgage debt exceeds the value of their property.

Mortgage rates

The mini-price war that has broken out among lenders in the past few weeks has continued with the Nationwide cutting the cost of some of its mortgage deals.

The building society is shaving 0.2% off the cost of some of its two- and five-year fixed rate mortgages for people who are remortgaging.

The past month has seen a series of small rate cuts by big lenders, including the Halifax and Abbey, who have started competing again for new business.

Cumulatively this has taken the headline cost of some of the best deals below 6%, for people who can afford to put down a deposit of at least 25%.

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