House prices drop as market slows to a crawl

House prices fell last month for the first time since 1998, according to a survey of chartered surveyors published today.

House prices fell last month for the first time since 1998, according to a survey of chartered surveyors published today.

The report also shows the housing market is stagnating with the number of transactions dropping to its lowest level for four years. The survey, from the Royal Institution of Chartered Surveyors (Rics), is the latest piece of evidence to indicate the housing market is slowing.

Rics says the number of surveyors reporting falling prices outweighed those seeing price rises. Although the fall was by just 2 per cent, it is the first time the index has been negative since December 1998, when economists forecast a global recession triggered by an economic crash in Russia.

On average, surveyors said they had dealt with the sales of 26 homes in July, the lowest figure since July 1996. July is traditionally a quiet month, but the fall in market activity was 20 per cent sharper than between June and July a year ago.

Rics' housing spokesman, Ian Perry, says: "House price inflation has all but come to an end. Customer resistance will undoubtedly have a further effect on prices in the coming months."

The regional picture shows a reversal of the North-South divide that characterised the mini-boom of the last 18 months in which house price inflation hit almost 40 per cent in London. Rics says the deepest gloom is in the South, with a balance of 28 per cent of London surveyors and 32 per cent in the South-east reporting price falls. In contrast, 45 per cent of Yorkshire surveyors reported rising prices, albeit down 14 per cent on June. Surveyors in Wales and the North-east were also strongly optimistic.

The pattern is reflected by anecdotal evidence from surveyors. Stephen Whitley of R Whitley in West Drayton, west London, says demand has fallen and that "vendors are now reducing prices to stimulate interest". But Edward Watson in Newcastle upon Tyne says: "The market is steady with modest price rises in popular areas of the region. We expect this to continue through the summer."

The mortgage lenders Halifax and Nationwide, have both reported a slowdown. On Friday, the British Bankers Association and the Council of Mortgage Lenders reported a fall in growth in home loans.

The Monetary Policy Committee of the Bank of England, which sets interest rates, is anxious to see a slowdown in the consumer spending and will be comforted by the Rics survey, which it sees as authoritative.