House prices set to plummet by up to 10% in 2011, experts predict

Published 29th Dec 2010

House prices are set to fall by up to ten per cent next year as Government spending cuts bite and the problems in the mortgage market continue, economists said today.

In a survey 50 out of 56 economists who expressed a firm view said house prices will fall again. Just six predicted they would rise.

They are expecting declines of between five per cent and ten per cent as households struggle with tight finances, rather than a house price crash.

The predictions came as it emerged that first-time buyers now need an average deposit of almost £29,000 before they can get on the property ladder.

A worker on an average salary of £25,000 would take 15 years to amass the sum if they set aside ten per cent of their salary each month.

In London, where a deposit of £56,000 is now needed, the property market is unlikely to dip as sharply and is expected to continue to perform better than the rest of the country.

Three-bedroom semi-detached homes just outside the capital are expected to be the worst hit in the area as a result of public sector cuts.

House prices fell by 20 per cent between 2007 and their trough in 2009, but they went on to claw back around half of those losses as a shortage of homes on the market helped to underpin prices.

But the cost of property edged down again during 2010, to leave house prices at around the same level they started the year.

Economists' forecasts in the Financial Times for house price changes in 2011 range from falls of ten per cent, followed by further double-digit losses in 2012, to rises of two per cent.

Separate research by estate agent Savills also warned that house price falls were likely to be worst in the North, where the housing market is already under pressure and public sector spending cuts will have most impact.

Andrew Goodwin, of Oxford Economics, told the FT: 'Last year's supply shortage has been corrected, which has taken away the major support to prices, but, while the market fundamentals remain weak, they are more favourable than they were in the house price crash of 2008.'

Ian McCafferty, chief economist of the CBI, said sales volumes were likely to be hit harder than prices due to the absence of distressed selling.

Savills warned that the housing market in the North East and the North West looked set to suffer most from Government spending cuts, in research carried out by the Daily Telegraph.

It said housing transactions in these regions were already running at less than half their average during the five years before the credit crunch struck, while repossession figures and new development starts were among the worst in the country.

The group said around 410,000 public sector jobs and £81bn of spending would be cut in the UK during the coming four years, with the North likely to suffer from the impact of this more than the South.

Around 23 per cent of the workforce in the North East is employed by the public sector, falling only slightly to 21per cent in the North West.

Lucian Cook, director in residential research at Savills, said: 'The areas with high repossession levels are exactly those where turnover has been at its lowest and where buyer demand has been at its weakest.


AUSTRALIA SEES BIG HOUSE PRICE RISES
prices

Australia had the fastest-growing house prices in the world in 2010, figures revealed today.

They soared by 9.4 per cent - but the market is not expected to perform as well next year when interest rates go up.

Amazingly, in the first quarter Down Under prices had gone up by 15.9 per cent in the first quarter - after inflation had been taken into account.

France saw 6.8 per cent gains, in Sweden they were up by 5.6 per cent and by 4.7 per cent in Scotland, according to Canada's Scotiabank who looked at figures for 12 leading economies.

There were modest falls in Japan, Italy and Ireland while the United States and Germany saw no overall movement in prices.

Scotiabank analyst Adrienne Warren said: 'While Australia's close trade ties with Asia and resource wealth will continue to underpin a solid pace of domestic activity, higher interest rates will worsen already strained affordability,.'

'This has meant both lower price growth in the mini-recovery of 2009 to early 2010 and higher price falls since that date in areas such as the northern metropolitan belt from Liverpool to Hull compared to, say, the commuter heartland of south-east England.'

The group said the housing market in the North had also suffered more from the problems in the mortgage market, as slower price growth meant people had less equity in their properties than in the South.

Meanwhile, research revealed the typical first-time buyer needed a deposit of £28,770 in 2010 - the equivalent of 21 per cent of the value of the home they were buying, according to mortgage lender Halifax.

The figure is nearly three times the typical deposit of £9,865 saved by new buyers in 2000.

Those in the South East now have to save more than £37,000, and people in the South West put down nearly £33,000.

The huge deposits are needed because of house price rises during the past decade, as well as banks and building societies tightening their lending criteria as a result of the credit crunch.

Although the typical age of someone buying their home during 2010 remained unchanged at 29, the Council of Mortgage Lenders estimates that between 80 per cent and 85 per cent of these buyers received help from family and friends in putting together their deposit.

Despite low interest rates, house price falls and the stamp duty holiday, the number of people buying their first home is still only around half the level seen before the credit crunch struck at 200,000, compared with 400,000 in 2006.

Meanwhile, homeowners are paying off their mortgages at a faster rate, figures released today for the third quarter revealed.

Borrowers reduced their outstanding mortgage debt by £6.1 billion during the three months to the end of September. It was the 10th consecutive quarter during which the amount of money people unlocked from their homes was negative, according to the Bank of England figures.

The figure was also the biggest net injection of equity people have made into their homes since the first quarter of 2009.

Source: ' This is Money '

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