'Double dip' predicted for housing market

House prices look set for a "double dip" this year, even if the economy as a whole manages to avoid it – with a total real-terms deprecation in property values of close to a third since the peak of 2007, say analysts.

The news comes despite evidence of a lift in activity. The Royal Institution for Chartered Surveyors said that 8 per cent more chartered surveyors reported a rise rather than fall in new instructions, up from 4 per cent more in March. Spring is traditionally a busier time of year for the property market, and the exceptionally cold winter may have added to this seasonal bounceback.

The latest Halifax house price index shows that average prices fell by 1.4 per cent between March and April, taking the overall drop in house values from their peak in 2007 to about 20 per cent, and the annual decline to 3.7 per cent.

The current average house price of £160,395 is 4 per cent above the April 2009 low point, but remains 20 per cent below its August 2007 peak of £199,612.

Adding inflation to the equation, the real-terms fall in house prices since 2007 has been closer to 30 per cent – with analysts forecasting a further 5 to 7 per cent fall this year.

Immediate prospects for the market, says Martin Ellis, housing economist at Halifax, are not encouraging: "Weak confidence among households, partly due to uncertainty over the economic outlook, is constraining housing demand and resulting in downward movement in prices."

The Rics housing spokesman, Michael Newey, added: "The return of sellers to the market is positive, but activity still remains subdued and it is difficult to see it picking up materially over the coming months."

Interest rates too may tighten over the coming months, depressing activity and values. Though many analysts only expect the Bank of England to raise the Bank rate by 0.25 percentage points in November or later, the psychological effect on would-be buyers may be greater if they become convinced that this turning point in the interest rate cycle presages a return to pre-crisis interest rates – and higher mortgage bills.

The Bank will indicate its view on interest rates in its Inflation Report tomorrow.