The British pound did not react to the news that UK house prices had dropped even more after a surge in the cost of borrowing over the last year. The threat of a recession continues to suppress demand from potential buyers. House prices are falling at the fastest rate since 2009.
According to the data from the UK Nationwide Building Society, the indicator fell by 3.8% compared to the previous year. The price drop came exactly a month after it fell by 3.5%. Economists had even expected a 4% decrease. The report for the previous month proved that 13 interest rate hikes by the Bank of England since the end of 2021 have seriously affected and limited consumers' ability to pay for real estate. The market is currently in its deepest slump since the global financial crisis, which occurred 15 years ago.
Those who want to buy a house with a mortgage loan face a lot of problems. So far, prices have remained relatively high, but as early as November of last year, the UK Nationwide Building Society began warning of a potential 30% price drop that could occur in 2023. Prices have already fallen about 4.5% from their peaks, and now the average house price is 260,828 pounds sterling. Prices fell 0.2% from June to July after rising 0.1% in the previous month. The average cost of a house has decreased by 0.5% this year.
The society has reported that it expects a moderate decline. The current forecast suggests a drop from the peak to a low of about 6.5%. Economists also believe that the pressure of higher mortgage rates and a decrease in the cost of living will have a strong impact on property prices until the end of this year.
Bloomberg Economics expects house prices to decline by about 10%, which means they could lose another 5.5% by the end of the year.
The UK Nationwide Building Society reported that there were 86,000 housing transactions in June, which is 15% lower than a year ago and about 10% below the pre-pandemic level.
Due to the ongoing cost of living crisis affecting UK households, it is no surprise that fewer people want to buy new houses. This is also pushing prices down both monthly and annually.
Notably, at the last meeting, the Bank of England once again raised rates to curb inflation. Economists expect another quarter-point increase this Thursday to 5.25%, which would be the highest level since 2008. Meanwhile, traders also assess the probability of a half-point rise this week at 40%.
As for the technical picture of GBP/USD, demand for the pound remains quite restrained, and further growth of the pair is under question. A rise could only be expected after bulls gain control over the 1.2840. This action will strengthen hopes for a recovery to the areas of 1.2880 and 1.2920, after which we can talk about a more abrupt surge to around 1.2960. If the pair declines, bears will try to take control over 1.2805. If they manage to do this, breaking through this range will affect all the bull positions and push GBP/USD to the low of 1.2765 with the prospect of reaching 1.2715.
Meanwhile, pressure on the euro has returned. To regain control, buyers should climb above 1.1000. This will allow them to break out to 1.1040. From this level, the price can climb to 1.1075, but doing so without the support of major players will be quite problematic. In case of a decrease, buyers will become active only around 1.0945. If they failed to do so, it would be good to wait for a low of 1.0910 to be updated or open long positions from 1.0870.
