House prices fell for the second month in a row during April, while annual growth has dropped to its slowest rate in nearly four years, new figures show.
According to the latest Nationwide house price index, monthly house price growth fell 0.4% in April, the first time house prices have fallen in consecutive months for nearly five years.
On an annual basis, prices dipped 2.6% in April – the slowest pace since June 2013. This took the average price of a property to £207,699.
Robert Gardner, Nationwide’s chief economist, said that the slowdown may indicate that households are starting to react to the “emerging squeeze on real incomes” and affordability pressures.
Since last year’s Brexit vote, consumers have faced a loss in spending power as a result of rising inflation following a fall in the pound.
House price growth has outstripped earnings growth for a number of years which has eroded affordability.
The typical house price is currently 6.1 times average earnings, well above the long run average of 4.3 times earnings, and close to the all-time high of 6.4 times recorded in 2007.
“In some respects, the softening in house price growth is surprising because the unemployment rate is near to a 40- year low, confidence is still relatively high and mortgage rates have fallen to new all-time lows in recent months,” said Gardner.
Gardner said that the uncertainty surrounding the upcoming election and ongoing Brexit negotiations made predicting housing market trends more difficult.
“Nevertheless, in our view, household spending is likely to slow in the quarters ahead – along with the wider economy – as rising inflation increases the squeeze on household budgets. This, together with mounting housing affordability pressures, is likely to exert a drag on activity and house price growth in the quarters ahead,” he said.
Howard Archer, chief economist at IHS Global Insight, said that April’s second successive drop in house prices provided compelling evidence that the housing market is being increasingly affected by the squeeze on consumers and their concerns over the outlook.
“We suspect markedly weakening consumer fundamentals, likely mounting caution over making major spending decisions, and elevated house price to earnings ratios will weigh down further on housing market activity and house prices over the coming months. However, a shortage of supply is likely to put a floor under prices,” he said.
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