House prices will continue to fall this year and next year before stabilising, according to the National Housing Federation’s forecast.
The Federation predicts that property prices will fall by 12.2% this year, then drop a further 4.6% in 2010 before recovering in 2011.
The research also suggests that homeowners who bought at the peak of the 2007 property boom could be in negative equity for a further five years. However, it predicts that the average house price in England could rise by 20% to £227,800 by 2014.
Figures last week from Nationwide painted a somewhat different picture, revealing that house prices had increased by 1.3% in July. Although only a small increase, this is the third consecutive month that house prices have risen in Nationwide’s housing price index.
David Hollingworth, spokesman for mortgage broker London & Country, describes the latest housing predictions as "gloomy", and he’s also concerned about the National Housing Federation’s forecast that the market may rise sharply after 2011.
"In the wider market a lot of indices show house prices slightly on the up so these figures are definitely at the gloomier end of the spectrum."
"A 20% rise sounds very bullish and must see house prices rocketing up in the latter years. We’ve got a long way to go yet and we must remember that the housing market is still nothing like it used to be," he adds.
The National Housing Federation, which represents 1,200 not-for-profit housing associations, also reported a shortage of new homes being built and warned that five million people could be on housing waiting lists by 2010 - which it believes will be the reason for eventual house price rises.
"Our new research shows that while house prices are falling in the short term, they will inevitably increase in the long term because of a fundamental under-supply of housing," says David Orr, chief executive of the National Housing Federation.
Orr is particularly concerned for young and lower-income households, priced out of the housing market, adding: "For millions of people who want a home, getting a mortgage can be like winning the lottery. First-time buyers and those wanting to buy shared ownership properties remain victims of a deep freeze in mortgage lending."
Nationwide’s chief economist Martin Gahbauer agrees that the housing shortfall could have long-term implications on the housing market, with the supply-demand balance depending "critically" on the rate of housing construction.
And Gaubauer believes that this shortage could worsen over the next few years. "Based on recent levels of housing starts, it looks likely that only around 100,000 homes will be built during 2009, which would represent by far the lowest level on record. The potential exists for a considerable housing shortfall to develop over the next few years."
Even in a recession, the desire to become a homeowner is still strong according to Hollingworth and it is up to the building industry to address the demand for more affordable housing.
He adds: "There have been lots of new builds over recent years but these have tended to be flats in city centres. [The construction industry] needs to learn from these mistakes and needs to be looking at the more affordable end of the market, such as family homes."