House Price Growth Hits 12-Year Low

It's been another day of economic extremes. Or, to be more precise, today was when those extremes actually emerged.

Firstly, house prices. Britain's housing market slackened further in March, pushing the annual growth rate to its lowest level in more than a decade, the nation's leading building society has just announced.

Secondly, consumer confidence. UK consumer confidence has slumped to a 15-year low, according to the latest from a leading survey.

And throw in what's currently happening in the money markets, and the economic warning bells are sounding ever louder.

UK house prices declined more than forecast in March, according to the latest Nationwide report, shedding a seasonally-adjusted 0.6%. Not only was this the fifth consecutive monthly drop, the annual growth rate has now descended to just 1.1%, the slowest since March 1996.

Often the quarterly average is a better indicator than monthly moves, but again there's little cheer for homeowners with this less volatile series still 1.5% lower than three months ago.

So what does Nationwide think has happened? After all, it was only last November that the building society was quite upbeat, "not expecting a recession" and believing that with interest rates "on the way down", the "underlying fundamentals" were "more positive than sentiment swings might suggest".

Now the survey is singing a very different tune, blaming "a clear change in sentiment since the late summer" for the acute house price growth slowdown.

As the mortgage lender puts it, expectations of falling prices can have a "major impact on transactions and price levels" as fewer people move house and also as buyers submit lower bids.

Again, there's only cold comfort here for property owners, with Nationwide's own consumer confidence readings showing a much lower price growth outlook since September.

It's all going down...

This chimes closely with a slump in the overall state of British consumer well-being to a 15-year nadir, according to the latest poll from GfK NOP, whose sentiment gauge slipped for the seventh straight month.

All five components of the index declined. The section measuring consumers' outlook on next year's general economic situation tumbled to the lowest point since October 1992. A spending gauge on major purchases plunged to its lowest since April 1995.

And as Britain's biggest mortgage lenders pull even more home loan deals and tighten up credit criteria, and with economic analyst Global Insight also warning of a "sharp" housing market correction, the news from the money markets is getting worse.

Bank of England Governor Mervyn King may have hinted that the "sharp slowing of UK growth" could hasten more official interest rate cuts, but the bank deposit dealers aren't listening.

LIBOR bore

Not exactly the most exciting subject on the planet, but one on which I've written several times, most recently when Bear Stearns hit the buffers.

What I previously described as the UK's ‘jitters' barometer, 3-month LIBOR (the London interbank offered rate at which banks lend to each other), has now topped 6%.

The gap between 3-month LIBOR and benchmark Bank of England base rates has now widened to more than 0.75%, the highest since the panic when the Crock hit the rocks.

Banks have been badly shaken by their loan losses and are becoming increasingly fearful about counterparty risk, i.e. not getting paid by the firm on the other side of the trade...and are hoarding cash.

OK, maybe there are technical factors at work, like balance sheet window-dressing (banks trying to make their accounts look as good as possible for the quarter-end), but the omens aren't good for British borrowers who'll end up paying through the nose for any loans that are money market linked.

So yes, there could be another base rate cut soon.

But despite both house prices and consumer confidence falling further, don't expect to get much benefit.

Though if you do want to borrow some cash, read today's article by my Foolish colleague Donna Werbner. Fast!