THE average price of a local market home has fallen again. After reaching a record high of £310,650 at the end of 2006, it dropped by 1.7% to £305,425, but a further 5.1% fall has seen it plummet to £290,000 at the end of June.

The Policy Council’s policy and research unit said it was the largest downward move since 2002.

‘There is no evidence to suggest that house prices have peaked in Guernsey,’ said senior research analyst Gareth Jones.

‘There are relatively few transactions each year and these can be subject to fluctuations over time. The four-quarter moving average is a better reflection of longer-term trends in the residential property prices, so care should be taken in saying that there will be a sustained downturn in property prices based on just two quarters’ data.’

The latest drop is probably due to a combination of factors. There was a higher proportion of local market apartments sold in quarters one and two of 2007 than in three and four of 2006 – 28% and 25% of local markets sales compared to 20% and 23% previously.

‘This may have had the effect of lowering the average price overall.’

But even accounting for sales of flats, the average cost of a house fell in the first two quarters of 2007. Mr Jones said reasons could be:

n different type, quality and value of houses;

n the possible effect of Bank of England interest rate rises; and

n possible short-term fluctuations in the housing market.

The latest figures reveal a rise in the average price over the full year of 6.2% – even though the average figure at the same time last year was the same at £290,000.

Martel Maides estate agency director Keith Enevoldsen said that house price inflation was generally levelling off compared to previous years, which was a sign of greater caution in the market.

He warned not to read too much into comparisons between one quarter and the next.

‘What is a more meaningful figure is the average over the last four quarters, which provides a more representative sample and a longer-term view. Although these are showing house price inflation is levelling off, the trend for property values overall is still fairly steadily upwards,’ he said.

He believed that recent interest rate rises were likely to be one of the factors in the levelling off of price inflation and although the full impact was not yet known, the market remained strong.

‘In the past, interest rates had a more immediate effect because most people were on variable-rate mortgages and therefore felt the impact straight away. Now that a lot of people have locked in to fixed-rate deals, for many of them the interest rate hasn’t yet changed. Their payments are still the same as they were two or three years ago, so there is a considerable lag before you see the full effect.

‘The cumulative effect of the recent rate rises is likely to have a slight dampening effect on prices, but overall the market is still very robust.’