A leading economic group has downgraded its house price forecast, and is now predicting 25% of property values will be wiped out by the end of 2009.
The Centre for Economic Business Research (cebr), which has previously been bullish about the outlook for the UK housing market, now says it expects prices in 2009 to be at a lower level than they were in 2004, with a peak-to-trough fall in the average price of almost £50,000.
Although the cebr says lower interest rates and the government’s banking rescue package should increase the availability of mortgage credit, it says this won’t prevent a significant slide in property prices.
The pending recession, and all the factors that have led the economy to this low point, are all integral to cebr’s revision of its outlook for house prices. Its forecast from earlier in this year pointed to a significant slowdown followed by a quick recovery around 2010, with house prices 15% higher in 2012 than in 2007. However, it now believes prices in 2012 will be 3% lower than in 2007.
Ben Read, managing economist at cebr, says: “Confidence in the housing market has been shattered as lack of mortgage availability has left few sellers chasing even fewer buyers, and expectations of falling prices have become embedded.
“Now that the financial crisis turns into an economic crisis with rising unemployment and falling household incomes, we could see house price falls starting to accelerate again.”
He adds: “With high unemployment and confidence clearly shaken, while some buyers will return to the market we don’t expect to see prices come back quickly, despite improving credit conditions."
Figures from Hometrack, a property data provider, show that prices have fallen 7.3% over the past 12 months with average values now back at a level last seen in March 2006.
Richard Donnell, director of research at Hometrack, says weak consumer confidence is undermining demand for housing with a 35% fall in the number of applicants registering with estate agents over the last six months.
“The outlook for demand is set to remain weak as consumers focus their attention on the economy,” he adds. “The expectation of a forthcoming recession and rising unemployment will further undermine demand for housing and continued price falls are inevitable in the months ahead.”
Currently, the biggest factor putting downward pressure on house prices is a lack of transactions. According to property search engine Globrix, around 30% of UK properties have now been on the market for more than six months with 12% remaining unsold since the beginning of the year.
Economists expect transaction levels to improve next year, as mortgage credit becomes more widely available and some buyers start to take advantage of cheaper prices.
Read adds: "Longer term, the fundamentals of not enough growth in the housingstock, rising population, progressively smaller household size andgrowth in incomes will eventually reassert themselves.”