House prices predicted to fall in 2010

Published 28th Dec 2009

• Analysts claim market needs a broader base of home buyers
• Scarcity of supply offset by strained household incomes


Rising unemployment, strained household incomes and a fragile economic backdrop are likely to push house prices lower in the coming year, according to the property research group Hometrack's latest housing market outlook.

The group predicts UK house prices will fall by 1% in 2010 following what it reports as "no growth" in prices over 2009. Hometrack sees a scarcity of supply being offset by a murky economic outlook.

"While economic growth is expected to pick up in 2010, rising unemployment and slow growth in household incomes is set to act as a drag on demand," says the group's director of research Richard Donnell.

"The new year will also see a growing focus on the election and further speculation over possible changes to fiscal policies and government spending. On the basis of the economic outlook and market evidence we believe it is unlikely that the improved market conditions of 2009 will be replicated in the new year."

The picture will, of course, vary around the country. Hometrack predicts equity-rich households that do not depend on getting big mortgages to buy homes could continue to put upward pressure on prices in localised markets in 2010, after pushing up prices in southern England in particular this year.

"Yet a sustainable and broad-based recovery in the housing market needs a broader base of buyers," says Donnell.

Over the last year, estate agents across the country registered a 41% increase in demand, while in London that figure reached 70%, Hometrack said. In contrast, the volume of homes for sale across the country grew by just 7%.

"Those regions with the greatest increase in demand also registered the strongest growth in pricing, namely London, the south-east and south-west. These regions also saw the greatest supply shortages. In contrast Wales, the east Midlands and the north-east saw below average levels of demand and pricing levels have remained weaker," said Donnell.

Hometrack's latest monthly house price report shows December prices were down 1.9% on a year ago, albeit a slower rate of annual decline than November's 2.9% fall. The survey showed the usual seasonal slowdown with the first monthly decline in buyer demand since January as the number of new buyers registering with agents fell 2.2%.

Hometrack said results from December's survey of estate agents and surveyors in England and Wales continued to highlight evidence of "pricing resistance". Namely, the average time on the market for properties had been falling this year, but the decline abated in the last three months to hit 8.3 weeks in December – while the proportion of the asking price achieved has plateaued at about 93%.

Hometrack's forecast contrasts with the 2010 house price outlook from the Centre for Economics and Business Research (CEBR) thinktank. Its central prediction is that house price growth will moderate, with prices at the end of the year being between 2-4% higher than today.

"Over the longer term, the weak recovery will continue to hold growth back, but we still expect house prices to be around 15% higher at the end of 2012 than they are today," says CEBR's managing economist, Ben Read.

Explaining the predictions, he added: "Mortgage lending will continue to improve slowly but steadily as banks continue to rebuild their balance sheets. In addition, we expect the price of mortgages to remain relatively low as the monetary policy committee (MPC) keeps interest rates on hold at 0.5%, unless the precarious public finances lead to a sterling crisis which forces the MPC's hand."

He also pointed to the effect of housing remaining in short supply, especially following the blow to the housebuilding sector from the credit crunch.

"As long as housebuilding does not keep up with household formation, the supply side imbalance will continue to act as a driving force for house price growth. The dramatic collapse in housebuilding in the last two years will feed through into prices over the next five years," he said.

The forecast follows figures last week showing a sharp rise in the number of home loans approved. The British Bankers' Association (BBA) said November mortgage approvals more than doubled on a year earlier. The comparison reflected a particularly weak market in 2008, the BBA said, rather than a much stronger market now. But it added that the number of approvals had risen gradually throughout most of 2009 and was now slightly higher than two years ago.

Source: ' Guardian '

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