British home prices fell further last month as borrowing costs held back demand, one of the largest mortgage lenders said, although the rate of decline showed a chance that the market could yet avoid a hard landing.

The Nationwide Building Society said prices fell 3.8% in its July survey from a year ago, quicker than a 3.5% drop in the previous month. While economists expected a slightly larger decline of 4%, it was the third straight month that prices had fallen at their fastest pace since the global financial crisis
in 2009.

The first hard data about July home prices indicate the 13 interest-rate increases from the Bank of England since the end of 2021 have strained consumer’s ability to pay for properties. Values based on Nationwide’s data have fallen about 4.5% since they peaked in August and now average £260,828 ($334,000).

Still, prices have so far avoided the collapse that appeared possible last autumn, when then-Prime Minister Liz Truss’s ill-fated budget sent borrowing costs soaring to 14-year highs. In November, Nationwide warned of a potential 30% drop in prices in a worst-case scenario.

Eoin Treacy's view

It is well understood that quantitative easing causes asset price inflation. Over the last 15 years, artificially low rates and abundant credit supported concurrent bull markets in bonds, equities, property, crypto and collectibles. It is logical to then conclude that quantitative tightening and higher rates results in asset price disinflation/deflation.