House prices to continue rising in 2010

Published 23rd Dec 2009

• Forecast suggests house prices will end 2010 1-2% higher
• Property supply struggles to keep up with demand



House prices in Britain are likely to continue to rise for the first half of 2010 as a limited number of properties come to market.

In its annual housing forecast today, the Royal Institution of Chartered Surveyors (Rics) says house prices will finish the coming year 1% to 2% higher than at the end of 2009. It said the number of properties for sale was likely to increase during the early part of 2010, but supply would still struggle to keep pace with demand, leading to further price rises. Transactions are likely to rise to a monthly average of 70,000 by the end of next year from 55,000 to 60,000 currently, but this is still nowhere near the highs of the boom.

Simon Rubinsohn, Rics chief economist, said: "The imbalance between supply and demand will continue into the early part of the new year resulting in some further house price gains. However, the combination of more available property and the beginning of the exit strategy from the big stimulus programmes that have helped support the economy will gradually exert a greater influence. Transaction levels are likely to increase, fulfilling the Christmas wish list of many agents throughout the country, but first-time buyers are likely to continue to struggle to procure finance from lenders without the help of generous relatives."

Halifax and Nationwide have said house prices have risen in recent months. Halifax said prices rose 1.4% in November and have risen by 8.5% since the low in April. Nationwide said the average house price rose by more than £700 last month and that prices would end the year significantly higher than at the start.

However, many experts believe house prices are being propped up by the lack of supply and will fall as more properties come on to the market in the new year. Fitch ratings said recently that house prices could yet drop by another 20%. However, Rics does not think there will be a "double dip" in house prices.

"Rics recognises that the residential market is likely to face some very real challenges over the next couple of years and would acknowledge that some renewed pressure on prices can't be ruled out. Even so, we doubt that any pullback will be of a significant enough magnitude to bring the average level of house prices across the whole of the country back to the lows touched in the early part of this year," the survey said.

But it added that there were still a lot of challenges, such as the prospect of higher interest rates and fiscal retrenchment. It also believes that the VAT and stamp duty increases, the increase in the top rate of tax to 50% and the tax on bonuses could all dampen buyer interest.

"The ending of the extended zero-rate band for stamp duty will, in all probability, have only a limited impact on the residential market in aggregate but there is likely to be a regional dimension with the Midlands, Wales and Scotland most at risk according to a recent questionnaire sent out to Rics members.

"However, London could be more adversely affected by the increase in the top rate of tax to 50p in April as well as the planned charge on banks' bonuses pools," it said.

Source: ' Guardian '

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