Now we have final house-price figures for 2008 from the two main lenders, Nationwide and Halifax, what do they tell us about the outlook? To recap, the Nationwide reported that the average house price fell by 15.9% last year to £153,048. The Halifax reported a 16.2% drop (although, calculated in the same way as the Nationwide data, it would have been down by 18.9% to £159,896).

The lenders’ figures show bigger falls than other house-price measures. They would argue that this is because they lead the rest, though there may be other technical factors at work. Let us leave that aside for now. One problem with their figures is they do not go back that far. The Halifax began publishing its monthly numbers in 1983; Nationwide started in 1991, during the last big housing recession. Nationwide, however, has worked some of its numbers back to allow broad comparisons to be made.

In 1990, at the start of the last recession, the two measures diverged significantly. Halifax recorded a house-price rise of 0.8% during the year, while the Nationwide’s index (though we did not know it at the time) fell by 10.7%. One explanation is the greater southern bias of the Nationwide measure.

Subsequently, Halifax prices fell by 3.5% during 1991 and 7.4% in 1992 before flattening out. Nationwide’s big fall in 1990 was followed by a smaller 2.3% drop in 1991, then a 6.5% decline in 1992.

We should not forget, though, that inflation was higher in those days - in 1990, it was in double figures – making the real house-price falls bigger than these numbers suggest. Nationwide suggests real prices fell by 37%.

What does history tell us? Principally, that there tends to be one really bad year for prices, followed by lesser declines. So maybe we have already seen the biggest annual falls in this cycle. Certainly, if we are following the Nationwide pattern from the early 1990s, we have the worst behind us. Yet history also tells us that the falls last for two to three years, so there is some way to go.

The current market is not, of course, mainly a house-price story, despite some people’s obsession with the subject. There is a collapse in activity brought about by the credit crunch, which shows no sign of abating. The Bank of England is doing its bit by cutting interest rates, but the Treasury will have to do more to break the lending log jam.

home.economics@sunday-times.co.uk

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