July 1, 2008 | posted by Michael Baxter in House prices |

You can hear the bulls leaping for joy. Hacks at the Daily Express sharpening their wit. The house price crash is over. To put it in the Nationwide’s own words: “The pace of house price falls slowed significantly in June.”

So how significant was this fall in house price falls? In June they fell by a mere 0.9 per cent from May, compared to a whopping 2.5 per cent.

Even as these words are being typed, Jeremy leaf from RICS is being interviewed on the Today programme and saying they are bad, but there’s a glimmer of hope and we are getting near bottom. The problem he said is not that people don’t want to buy properties, it is lenders.

And yet, actually, a 0.9 per cent fall is by almost any standards huge. Sure, May was higher, April a tad higher (-1 per cent) but that is it. You have got to rewind the clock back an awful long way to find the last time prices fell so fast. Annual house price falls are now 6.3 per cent, but they are 7.3 per cent down from last October’s peak.

The Nationwide’s Fionnula Earley tried her level best to strike a note of optimism when she said: “Perhaps surprisingly given the poor affordability conditions, first-time buyers activity as a proportion of overall house purchase completions has held up fairly well. First-time buyers accounted for about one third of house purchase transactions in the first quarter of the year, exactly in line with the average over the last three years.”

Ummmm. So what? House price activity is falling off the edge of a cliff. According to the Bank of England, mortgage approvals for first time buyers are just 37 per cent of the level seen a year ago and way below the nadir seen in the early 1990s. If the ratio of first time buyers to total buyers is constant, then all that is telling us is that all buyers are feeling the pinch, equally.

Capital Economics says that the Bank of England data suggests house price falls of 15 to 20 per cent this year.

The BIS report, covered above, is clear. Wild optimism got us in this economic mess. Yet, wild optimism, at the very heart of the crisis, is still alive and well.

On Easter Island, trees were destroyed to create methods for transporting rocks to build those famous statues. Until, eventually, there was one tree left. What happened to that tree? It was felled, and the local economy was devastated, a result of the deforestation. It seems the UK property market bulls are similarly blind to reality.