House prices to fall further in 2011, claim economists

House prices are expected to fall further in the new year as banks maintain a tight rein on mortgages amid government austerity measures, economists claim.

Experts predict that property values will plunge by 5 to 10 per cent in 2011 following a period of declining prices since the summer.

Of 56 economists polled by the Financial Times, 50 said they expected house prices to continue falling next year, compared to just six who thought they would rise.


Ian McCafferty, chief economist of the CBI employers’ body, told the newspaper: “Traditionally, in the absence of distress selling, the UK housing market adjusts more through volumes than prices, so prices are likely to slip rather than plummet next year.”


From their peak in 2007, British property prices plummeted by 20 per cent to a trough in 2009 but have subsequently recovered around half that figure.


He said sales would remain depressed by tight mortgage conditions, high prices relative to earnings and fragile consumer confidence.

Andrew Goodwin, of Oxford Economics, added: “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.”

The Office for Budget Responsibility has predicted that prices will fall by 1.4 per cent over the next 12 months.

Declines in prices are expected to be most acute in areas further from London.

However, those polled were divided on whether the predicted falls were a cause of concern. Many said prices are still fundamentally too high and causing social problems, so a movement lower represents a normalisation in the market.

Willem Buiter, chief economist of Citi and a former member of the monetary policy committee, said: “Anything that reduces UK house prices has to be a good thing on balance.”


Some economists said housing market weakness would undermine the economy. Mike Dicks, of Barclays Wealth, said: “Debt deflation can kill off a recovery, or keep it from gathering strength in the normal fashion.”

The average cost of a home in England and Wales dropped by 0.4 per cent during the December, according to Hometrack, the housing intelligence group.

The drop was driven by the ongoing shortage of buyers, with estate agents reporting a further 4.8per cent fall in the number of people registering with them in December, the sixth consecutive monthly decline.

Overall, the group said house prices had fallen by 1.6 per cent during 2010, with property values ending the year at a lower level than they started it in 71 per cent of England and Wales.

The group expects house prices to fall by 2 per cent during 2011, due to weak demand and the ongoing problems in the mortgage market.

But it added that a fall in the number of homes for sale, along with continued low transaction levels, would act as a support to house prices, and help to limit further falls.