LONDON - House prices fell for a second straight month in December even after the Bank of England cut interest rates, in a sign the property market slowdown is gathering pace and could spell trouble for the economy in 2008.
Nationwide building society reported on Friday that house prices fell 0.5 percent this month, taking the annual rate of increase to just 4.8 percent, the lowest since May 2006.
"There is undeniably a very real - and growing danger - that the housing market could see a sharp correction next year," said Howard Archer, economist at Global Insight.
The survey was the latest in a string of reports to suggest the economy will slow sharply next year after recording growth of around 3 percent in 2007, adding to pressure on Prime Minister Gordon Brown who is already suffering in the polls.
Consumer morale has sunk to a 12-year low, according to the GfK/NOP measure, in the wake of a global credit crunch that sparked the Northern Rock crisis, Britain's first bank run in more than a 100 years.
Further falls in house prices that actually start eroding the huge capital gains that have made hundreds of thousands of Britons into paper millionaires could inflict a serious blow to confidence that could take the whole economy with it.
According to the Nationwide, house prices in northern English cities were already 3 percent lower than last year.
Tighter lending conditions for more than a million people expected to have to refinance fixed-rate deals could also add pain to consumers already mortgaged to the hilt -- outstanding housing debt stands at more than a trillion pounds.
PAY NOW, SAVE LATER?
Household finances look set to be stretched further in 2008 also by rising food and energy costs -- the oil price was once again on Friday nearing its record high -- and as wages fail to keep pace with inflation.
