Average house price forecast to plunge £50,000 as recession bites

Published on Sunday 26 October 2008 19:58

ALMOST £50,000 will have been wiped off the average UK house price before the market bottoms out next year, an economics body warned today.

The Centre for Economics and Business Research (CEBR) – which has traditionally been bullish in its prediction for the UK housing market – said it had been forced to revise its forecasts following an "extraordinary combination of factors".

It warns today that the average price of a house in the UK will fall by 25 per cent from a high during the third quarter of 2007 to a trough at the end of next year.

The fall will come despite the Bank of England cutting its base rate by 1 per cent before Christmas, the CEBR forecast. It expects the base rate will be as low as 2 per cent next autumn.

The UK government's bank rescue package will "start to ease mortgage availability within the next few months", the report predicted.

While the study paints a grim picture over the next few years, experts at the CEBR expect house prices will eventually surge from 2011, virtually wiping out recent falls.

The CEBR said: "We expect prices to be broadly flat in 2010, after which prices will rise by around 20 per cent through 2011 and 2012 as fundamentals reassert themselves and affordability will be strong.

"Prices in 2012 will still be 3 per cent lower than in 2007 – this compares with our previous forecast, which predicted that prices in 2012 would be 15 per cent higher than in 2007."

The centre predicted the average UK house price will fall from 196, 693 in 2007 to 180,683 this year, before bottoming out at 157,058 next year.

Total house sales are forecast to fall from 1.76 million in 2007 to 900,000 in 2009. The CEBR said: "Activity in the housing market will remain low as many potential buyers wait for the market to bottom out.

"Overall, we expect transactions in 2009 to remain virtually the same as 2008 levels, with recovery in activity in the second half of the year as mortgage availability eases. Transactions will recover sharply in 2010, with a 33 per cent increase on 2009 levels, as lower prices and more favourable credit conditions attract buyers back."

Ben Read, the CEBR's managing economist, said: "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.

"With rising unemployment and falling household incomes, we could see house price falls starting to accelerate again. This will, to some extent, be offset by aggressive interest rates cuts, some of which will be passed to buyers, combined with a gradual relaxation in mortgage availability as the banking rescue package kicks-in."