Halifax Hse Price Index-Apr08

RNS Number:6136T
HBOS PLC
02 May 2008



                              Halifax House Price Index

                                  National Index                      April 2008




                        All Houses, All Buyers Index (1983=100)

Index (seasonally adjusted) 611.8    Monthly Change -1.3%    Annual Change -0.9%

              Standardised Average Price (seasonally adjusted)  #189,027



                                     Key Points

*   House prices fell by 1.3% in April. Prices were 0.9% lower on an annual 
    basis.


*   We expect a mid single digit percentage decline in UK house prices this 
    year. There will be regional variations, however.  Some areas of the 
    country, such as Scotland, are likely to record modest price rises whilst 
    other parts (e.g. Wales and West Midlands) are expected to see falls above 
    the national average.


*   Price falls should be viewed in the context of the substantial price rises 
    over recent years.  UK prices nearly doubled (190%) over the ten years to 
    August 2007.  The average UK price rose by more than #130,000 between August
    1997 and August 2007.


*   The decline in prices is driven by a squeeze on spending power and the rapid 
    rise in house prices in the last few years. These factors have curbed 
    housing demand. The rise in interest rates between August 2006 and July 2007 
    has increased average mortgage costs.  A decline in 'real' earnings over the 
    past year has also constrained housing demand.


*   A growing - albeit slowing - economy, high employment levels, low interest 
    rates and a shortage of new homes underpin housing valuations. The economy 
    grew at an annual rate of 2.5% in 2008 Q1; in line with the long-term 
    average. Employment increased by 152,000 in the three months to February 
    compared with the preceding quarter and stands at a record high 29.5 million.


*   More Bank of England interest rate cuts are expected over the coming months 
    as signs of the expected economic slowdown accumulate.  This evidence will 
    help to allay the MPC's concerns regarding inflation over the medium term,
    providing scope to reduce rates.


*   This month we look at housing transaction levels as part of our occasional 
    series on key market developments. Transaction levels in recent years - 
    averaging 1.16 million a year during 2005-2007 - have been much lower than 
    during previous cycles (1.7 million in 1988).





Commenting, Martin Ellis, chief economist, said:

"House prices fell by 1.3% in April. We expect a mid single digit percentage
decline in UK house prices this year. There will be regional variations,
however.  Some areas of the country are likely to record modest price rises
whilst other parts are expected to see falls above the national average.

Price falls should be viewed in the context of the substantial price rises over
recent years.  UK prices nearly doubled 190% over the ten years to August 2007.
A growing economy, high employment levels, low interest rates and a shortage of
new homes underpin housing valuations."


Pressures on householders' income curb housing demand

The decline in prices is driven by a squeeze on spending power and the rapid
rise in house prices in the last few years. These factors have curbed housing
demand. The rise in interest rates between August 2006 and July 2007 has
increased average mortgage costs.

There has been a modest decline in 'real' earnings over the past year. Average
earnings rose by 3.7% in the year to February, below the 4.1% increase in the
headline rate of retail price inflation over the same period. Sharp increases in
both fuel (4%) and food prices (6%) over the past year have helped to reduce the
discretionary income available to households to fund house purchase.

Housing market activity is significantly lower than a year ago

Completed property sales in March were down 20% on an annual basis. The number
of new buyers interested in home purchase fell for the sixteenth successive
month in March, highlighting the decline in housing demand. (Source: RICS)

The number of mortgages approved to finance house purchase - a good leading
indicator of house sales - in Q1 2008 was 41% lower than a year earlier.

High employment and low interest rates support house prices

A growing economy, high employment levels, low interest rates and a shortage of
new homes underpin housing valuations. The economy expanded at an annual rate of
2.5% in 2008 Q1; in line with the UK's long-term average. The quarterly rate of
growth, however, did slow from 0.6% in 2007 Q4 to 0.4% in 2008 Q1.

Employment increased by 152,000 in the three months to February compared with
the preceding quarter and was 456,000 higher than a year earlier.  The total
number of people in employment stands at a record high 29.5 million.

The UK economy is forecast to slow during the course of 2008, recording below
trend growth for the first time since 2005.  We expect there to be a modest rise
in unemployment later in the year due to this easing in growth. The scale of the
increase in unemployment is unlikely to cause widespread difficulties for
households.

MPC to lower rates further during the next few months

More Bank of England interest rate cuts are expected over the coming months as
concrete evidence of an economic slowdown accumulates.  This evidence will help
to allay the MPC's concerns regarding inflation over the medium term, providing
scope to lower rates.  The MPC is nonetheless expected to maintain a
"gradualist" monetary policy stance, lowering rates at a steady pace.



HOUSING TRANSACTIONS

The number of housing transactions in recent years has been significantly lower
than at the height of the late 1980s housing boom

There were 1.17 million house sales in England & Wales in 2007 and an average of
1.16 million in the last three years (2005-2007).  This is nearly a third lower
than in 1988 when there were an estimated 1.7 million transactions.

Transactions have also been significantly lower as a proportion of the housing
stock in recent years; averaging 7% during 2005-2007 compared to 12% between
1986 and 1988.

The number of first time buyers (FTBs) has also fallen sharply in recent years

An estimated 300,000 FTBs entered the market in 2007, the lowest since 1980.
This compares with an estimated 900,000 at the peak in 1988.  FTBs have also
declined sharply as a proportion of all borrowers taking out a new mortgage to
finance house purchase, accounting for 30% in 2007 compared to 51-52% in 1989
and 1990. (FTBs accounted for 14% of all new mortgages (i.e. including
remortgages) in 2007 against 45% in 1993 (the earliest available data on this
basis).)

Buyers have been putting down bigger deposits than in previous cycles

The average deposit put down by FTBs in 2007 (#34,381) represented 20% of the
purchaser price compared with 12% in 1989.









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