House prices fell by 1.3% in December, and may extend their decline this year as uncertainty over the economy continues to deter homebuyers.
The Halifax found prices in the final three months of 2010 were 0.9% lower than in the previous quarter, but the drop was far less than the quarterly falls of 5-6% during the second half of 2008.
On an annual basis, prices in December were 1.6% lower as measured by the average for the last quarter, against the same period in 2009. Prices in December alone were 3.4% lower than in December 2009.
Martin Ellis, Halifax housing economist, says: "Looking forward, we expect limited movement in house prices during 2011 but with the risks on the downside.
“Current signs that homeowners are becoming more reluctant to sell would, if continued, help reverse the imbalance between buyers and sellers. Nonetheless, uncertainty about the economy, weak earnings growth and higher taxes could put some downward pressure on demand.”
Interest rates are likely to remain very low for an extended period, he predicted, supporting mortgage affordability for homeowners and limiting financial pressure on existing homeowners to sell.
The low interest rate environment has slashed the cost of mortgage repayments from a peak of 48% of average disposable income in mid-2007 to 29% in Q4 2010, substantially supporting housing demand, said the Halifax.
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