House prices back where they were 4 years ago

THE average Scottish house has failed to gain any value over the past four years - and the price has actually dropped by £1,000.

Property prices are now almost identical to what they were at the start of 2007, according to the latest Scottish House Price Monitor from Lloyds TSB Scotland.

In the three months to the end of April, the price of the average domestic property in Scotland fell by 3.6 per cent, reversing earlier gains.

As a result, the average price is now 153,335, compared with 154,364 in the first quarter of 2007 and 166,199 at the height of the property market in 2008.

The market remains slow, with the number of house sales roughly half what it was prior to the recession.

In the past three months, sales were down by 6 per cent over the previous quarter and 18 per cent compared with the same period last year.

The number of house purchases in March 2011 was 3.1 per cent down on the same month last year - but up 42 per cent on February's figure.

While house prices have fallen in Dundee, there have been increases in Perth, Fife, Tayside and the south-east of Scotland. And the country's three biggest cities have all enjoyed year-on-year increases - of 14 per cent in Aberdeen, to 201,205; 13 per cent in Edinburgh, to 216,003; and 8.5 per cent in Glasgow, to 155,328.

Donald MacRae, chief economist with Lloyds TSB Scotland, said: "The Scottish economy exited recession at the end of 2009.

"A slight fall in output in the first quarter of 2010 was followed by robust growth of 1.3 per cent in quarter two and trend growth of 0.5 per cent in quarter three, before a weather-induced fall of 0.4 per cent in the last quarter. Most indicators point to a resumption of growth in the first quarter of this year.

"The Scottish housing market has adjusted to the recession with a halving of sales and a period of volatile price movement over the last three and a quarter years.

"Average house prices in Scotland are now very close to the levels of four years ago. Consumer confidence has fallen due to high levels of retail price inflation in excess of increases in earnings, squeezing disposal income. The slow recovery from recession is being expressed in the housing market, principally through low levels of sales and a return to the prices of four years ago."

The report reflects what David Marshall, business analyst with the Edinburgh Solicitors Property Centre, said has been the experience in the capital.

"The major cause is the impact of the credit crunch - what we saw was that prices continued to rise during the first three quarters of 2007 and even into 2008," he said.

"They peaked in east central Scotland in the second quarter and from that peak, values started to fall away as the numbers of homes selling fell sharply. The problem was that the numbers of homes on the market rose and so supply was greatly in excess of demand.As a consequence, prices have fallen and so, more or less across the board, prices are 15 per cent below that peak level in the first half of 2008.

"We saw prices rise a little at the start of last year, but a lot of that was due to higher demand for larger family homes. But the lower end of the market is still suffering as first-time buyers are struggling to get mortgages."

Mr Marshall said he did not recognise the 13 per cent rise in the annual house price in Edinburgh as reported by the Lloyds TSB Scotland.

He said: "It is not something we have seen in our figures, but this may have been caused by a larger proportion of family homes selling which have skewed the figures."