Feb 14, 2011

Further house price falls expected as economy remains fragile


The fragile economic recovery looks set to disrupt the housing market during 2011 leading to property price falls, it was predicted today.
The Centre for Economics and Business Research (Cebr) said house prices had risen by 6.4% during 2010, but it said the market recovery would stall this year, triggering price falls of 1.7%.
It said anaemic growth in disposable incomes and higher unemployment throughout 2011 would trigger house price falls, particularly in regions that were most vulnerable to public sector cuts.
But it said affordability for first-time buyers would reach an eight-year high as house price growth weakened and mortgage interest rates stayed at record low levels.
Mortgage lending is expected to remain low next year as demand is muted and households focus on paying down their debt and increasing their savings levels.
But house prices should begin to rise again in 2012 as banks relax their lending criteria further and consumer confidence recovers.
The group expects property prices to rise by 2.3% in 2012, followed by gains of 3.7% in 2013 and increases of 4.7% and 5.5% in 2014 and 2015 respectively.
Douglas McWilliams, chief executive of Cebr, said: "We expect house prices to grow tentatively over the coming years, given that household incomes are being squeezed and banks are still wary of lending.
"There is currently significant uncertainty in the market caused by the Government's spending cuts and a choppy recovery, which has greatly impacted transaction levels."
Shehan Mohamed, the report's author and an economist at Cebr, said: "We expect to see household earning power suffer over the next year or so, due to higher inflation and weaker employment prospects as the economic recovery remains fragile.
"Lower consumer confidence throughout the year is expected to rein in demand for mortgages, which will average around 50,000 per month - still around 50% lower than pre-credit crunch levels.

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