UK house prices fell by 0.2% m/m in December, according to the Nationwide house price index, a little below our and the consensus forecast of 0.0%. House prices were up by 0.4% on a 3m/3m basis and by 1.0% y/y. Following the post-recession bounce, nominal house prices have been little changed over the past two years.
   

The resilience of house prices has surprised many commentators, who were predicting a much larger shake-out given apparently stretched valuations prior to the financial crisis. Mechanically, prices this year have been supported by the fact that the availability of properties to buy has stagnated in tandem with new buyer demand. However, while nominal prices have fallen by only about 12% from their 2007 peak, in real terms the decline has been almost 24% and in December real house prices hit their lowest level for more than eight years.

The Nationwide's quarterly regional data show that most areas of the UK saw prices rise in 2011, but generally by small amounts (see table). Eight out of the 10 English regions recorded higher prices, as did Wales, but prices fell in Scotland and plunged by nearly 9% in Northern Ireland. At the other end of the scale, prices in London rose by 2.6% q/q and 5.4% y/y in Q4, leaving them only 1.6% below their pre-crisis peak.
 
Just as the eyes are the window to the soul, the housing market is the window to the UK consumer, and a distinct lack of vim is on display. Although falling inflation should mean that households fare less badly in 2012 than in 2011, there seems little reason to expect a major improvement in confidence, and housing activity and house prices look set to remain limp. Moreover, if the strains in European bank funding markets persist, rising funding costs may further constrain mortgage availability, acting as an additional drag on the market.