House prices fell by 15.9% in 2008, Nationwide said today - the biggest annual drop since the society began publishing its index in 1991.
December saw a 2.5% fall in prices - the second biggest monthly fall of the year after May, when prices were down 2.6%. The drop follows a 0.4% fall in November, which seemed to suggest the rate of decline was easing.
The snapshot of house prices from the UK's biggest building society showed that by the end of last year the average price of a UK home had fallen by £29,000 to £153,048.
Nationwide's figures are broadly in line with those published last week by the UK's largest lender, Halifax.
It reported that prices had dropped by 16.2% over the course of last year, with a 2.2% fall in December alone. Its index put the average price of a home at the close of last year at £159,900 - 20% below its peak in the summer of 2007.
Nationwide's chief economist, Fionnuala Earley, said 2008 had been a "year of turmoil" in the UK housing market.
"The disruption in the financial markets worsened throughout 2008 and had larger implications for the real economy than we anticipated a year ago.
"This time last year we expected the housing market to cool quickly as affordability was poor and economic conditions looked set to weaken, but we did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown."
Last month, the society said it would be ditching its annual forecast for house prices as a result of the uncertain economic outlook.
Earley today reiterated that position, saying volatile conditions made it more difficult than usual to estimate what would happen to the market over the coming year.
"In these unsettled times a forecast subject to frequent change could itself add to greater uncertainty," she said.
However, she said that tighter lending conditions and the fact that homes remained unaffordable for some people suggested prices would have to fall further before significant numbers of buyers returned to the market.
"In terms of house price expectations, current sentiment of borrowers and lenders is still fairly low," she said.
"Until the economy and the labour market stabilise, it is hard to imagine households becoming upbeat about the immediate future for house prices and this will hinder the pace of recovery."
Looking ahead
Nationwide said prices had fallen in all regions of the UK during 2008, although the rate of decline varied hugely. While Northern Ireland recorded a 34% drop in prices, the Scottish market dropped by just 8%.
In England the largest fall was in East Anglia, where prices were down by 16.6%, followed by London and the south-east where prices dropped by more than 15%. The smallest drop was in the north of the country, where prices were down 11% year-on-year.
Howard Archer, chief UK economist at IHS Global Insight, said the figures completed "a dismal year" for the housing market.
He predicts that prices will fall by a further 15% this year, taking the average to £130,091 on Nationwide's measure, and said the data increased the likelihood of further large interest rate cuts.
"The ongoing deep problems of the housing market maintains pressure on the Bank of England to deliver another deep interest rate cut on Thursday, although mortgage lenders are likely to be increasingly unwilling to pass on much of any further interest rate cuts," he said.
As a seasoned expert in real estate and economic analysis, my deep understanding of market dynamics and extensive experience in tracking housing trends allows me to provide valuable insights into the article about the 2008 housing market crash in the UK.
The evidence presented by Nationwide, one of the major building societies, reveals a significant 15.9% drop in house prices in 2008. This marks the most substantial annual decline since the society began publishing its index in 1991. December of that year saw a 2.5% decrease in prices, representing the second-largest monthly fall, with May being the most significant monthly drop at 2.6%. The decline followed a 0.4% fall in November, which initially suggested a potential easing of the rate of decline.
Nationwide's figures are consistent with those published by Halifax, the UK's largest lender, which reported a 16.2% decrease in prices for the same period. Both sources indicate a significant downturn in the housing market, with Halifax placing the average home price at £159,900 by the end of 2008, 20% below its peak in the summer of 2007.
Fionnuala Earley, Nationwide's chief economist, attributed the housing market turmoil in 2008 to disruptions in the financial markets that had larger implications for the real economy than anticipated. The unexpected speed of house price falls and the extent of the global and domestic economic slowdown took experts by surprise. Tighter lending conditions and unaffordability for some further suggested that prices would need to fall before significant numbers of buyers returned to the market.
The article notes regional variations in the rate of decline, with Northern Ireland experiencing a 34% drop in prices, while Scotland recorded only an 8% decrease. In England, East Anglia saw the largest fall at 16.6%, followed by London and the south-east with drops exceeding 15%. The north of the country experienced the smallest decline at 11% year-on-year.
Looking ahead, Nationwide abandoned its annual forecast for house prices due to volatile economic conditions. Earley emphasized the uncertainty in estimating market trends in such unsettled times, stating that a frequent change in forecasts could contribute to greater uncertainty. She pointed out that tighter lending conditions and housing unaffordability indicated a need for further price reductions before a significant recovery could occur. The article concludes with a prediction from Howard Archer, chief UK economist at IHS Global Insight, foreseeing an additional 15% fall in prices in the coming year, bringing the average to £130,091 on Nationwide's measure. This data, he suggests, increases the likelihood of further interest rate cuts by the Bank of England, although mortgage lenders may be reluctant to pass on the full impact of such cuts.
