Earlier this week, Nationwide building society provided some clues about the state of the housing market here in Britain. It published its monthly House Price Index report, opening with the phrase “Annual house price growth grinds to a halt”.
 
According to Nationwide, average house prices in the UK decreased by 0.1% in June relative to the same month last year. Compared to the previous month, prices also fell by 1.4%, after taking into account seasonal factors.
 
Despite the overly lurid headlines that you will probably read as a result of those numbers, they actually confirm that house prices have remained surprisingly stable, notwithstanding the crisis. To put it into perspective, Britain’s GDP could fall by as much as 11.5% this year, according to the OECD. That would make the 4.2% fall from 2009 look like a blip. Back then, however, Nationwide’s Housing Price Index fell by 16.5%.

With unemployment expected to reach just under 8% later this year, a fall in demand for housing is also taking place. Why then are house prices so stable when common sense tells us they should be falling in a similar magnitude to 2009?
 
It may well be because the supply of houses is also decreasing. Uncertainty is making landlords wary of selling properties, and government policy is supporting that inertia. Mortgage holidays have been extended and house repossessions have been banned by the Treasury until at least 31 October, meaning there is significantly less pressure for would-be sellers to put their properties for sale. A fall in both demand and supply has resulted in the equilibrium price remaining somewhat stable.
 
The question is, when those policies fade away at the end of the year, will the growth in supply be matched by a similar growth in demand?