House Prices House Prices: 2008 Predictions

Date Published:

28/05/2008

The Bank of England has reduced the interest rate three times in the last six months in an attempt to revive the property market whilst not creating inflationary pressures. Yet analysts remain unconvinced that the rate reductions will have any impact on forestalling a slide in house prices. The good news is that they feel the drops in interest rates, allied with other measures detailed previously, are likely to help ward off a recession.

David Miles, Managing Director of Morgan Stanley, who predicts that house prices will fall by 20 per cent in real terms in the next two years, comments, 'Any housing market correction will not impinge on the wider economy. GDP growth is expected to increase by 1 to 2 per cent in the next year and although unemployment levels may rise, it would not be by much. I am not anticipating a recession in the UK.'

Fionnuala Earley, Nationwide's Chief Economist, says, 'House prices fell for the fifth consecutive month in March. The price of a typical house fell by 0.6 per cent during the month, bringing the annual rate of house price growth down to 1.1 per cent - its lowest rate since March 1996.'

Commenting on the growing affordability constraints, Miles Shipside, commercial director of Rightmove, says, 'There is a large gap between sellers' expectation and buyers' ability to pay. The market needs to openly accept a 10 per cent reduction in house prices to achieve an orderly correction to affordability.'

Any such correction would in all likelihood impact on driving house sales that, according to a RICS UK housing market survey, has left stockpiles at the levels not seen for a decade. The stock of unsold property on surveyors' books jumped by more than 8.5 per cent in February. This is the fifth successive monthly increase in excess of 8 per cent.

Currently, the average level of unsold property per surveyor stands at 92 - the highest level since October 1998 when the average figure per surveyor was 93. As a result, the ratio of completed sales compared to the stock of unsold property on the market fell to 26.5 per cent, down from 28.7 per cent, and is the lowest number since September 1996.

Amidst the gloom, sales expectations turned positive for the first time since last June and price expectations improved slightly for the second consecutive month. RICS spokesman, Ian Perry, said: 'Confidence in the market is clearly having an effect on prices. A combination of a lack of available finance and weakening demand is causing a slow drop in capital values. While there is very little new supply coming onto the market, it is unlikely that there will be significant price drops in the short term but the build up of unsold stocks will encourage buyers to negotiate lower asking prices.