UK house prices dropped for the fifth month in a row in February and shrank year-on-year for the first time since the start of the pandemic.
Numbers from Nationwide indicate that the higher mortgage rates and the inflation-linked consumer squeeze are continuing to put off prospective buyers.
Property prices last month dropped 1.1% compared to February last year, the building society revealed, which was special for a number of reasons: it was the first annual contraction since the June 2020 lockdown, only the second fall since 2013, the largest decline in a decade and it more than the 0.9% fall economists had forecast.
House prices fell by 0.5% month-to-month and the average house price fell to £257,406 in February, down 3.7% from a peak of £273,751 last August.
Mortgage rates rose to a decade high in December following interest rate hiked by the Bank of England and a big wobble in the markets following the 'mini Budget' of Liz Truss and Kwasi Kwarteng.
The monthly drop was the sixth in a row and marked the longest period of consecutive falls since February 2009.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, noted that Nationwide’s data chimes with other timely indicators.
Rightmove’s measure of asking prices held steady on the month in February, but is not a seasonally adjusted measure and was the worst February outturn since records begin in 2002.
Pantheon's seasonally-adjusted Rightmove measure fell by 1.2% month-to-month, which put it 1.3% below its November peak, with Dickens noting that "sellers increasingly are accepting offers below asking price".
"Indeed, 73% of homes were sold under the asking price in January, well above the average over the past two years, 35%, according to the NAEA. And more recently, data from Zoopla show that sellers are having to accept offers an average of 4.5% below the asking price, the most for five years."
Nicky Stevenson, managing director at estate agent Fine & Country, said moving into the spring season "will be a critical bellwether for how the housing market is performing during this period of high inflation and economic insecurity".
"Spring is traditionally busy and we are seeing an increasing number of buyers are being enticed back to the market."
She said a slowdown in price growth is "playing a part in drawing prospective buyers back to the market, as they are keen to try to secure a good deal on their next home".
Jonathan Hopper, CEO of Garrington Property Finders, said the return of annualised price falls makes "uncomfortable reading for sellers" and although mortgage rates have settled down and consumer confidence is recovering, "things are still fragile and buyers are intensely price sensitive".
His company's experience is that price falls have been gradual rather than dramatic and while transaction volumes are down on where they should be for this time of year, buyer demand is "better than many dared hoped it would be".
Hopper reflected an industry hope that the upcoming Budget from Chancellor Jeremy Hunt in a fortnight’s time might include some "surprise support for those who are struggling to move".