Property prices will drop for the next two years, surveyors warn

Economics Editor,Sean O'Grady
Tuesday 10 August 2010 00:00
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A fall in house prices later this year and in 2011 is becoming increasingly likely, according to the latest survey of the property market from the Royal Institution of Chartered Surveyors.

The RICS's July poll of estate agents found more members saying that prices were falling than rising – the first time the index has turned negative since June last year. In contrast, last month saw 8 per cent more surveyors reporting improvements.

As a rule of thumb, the net negative reading of minus 8 the RICS publishes today is consistent with slippage in prices of about 2 or 3 per cent for the second half of this year, leaving prices up very slightly or flat on 2009.

Ian Perry,a spokesman for the RICS, said: "The fall in the RICS house-price measure is broadly consistent with most other recent data that has been released. This is a reflection both of the increase in supply following the scrapping of home information packs and the more cautious stance from buyers.

"Significantly, the forward-looking price expectation numbers suggest that this softer trend will continue through the second half of the year. However, agents are still generally optimistic about sales activity which should benefit from more realistic pricing of properties."

The RICS survey also reveals a stark difference in fortunes across the UK. In London and Scotland the probability is for a small improvement in house values but in the rest of the country there are much more serious falls. The situation appears to be especially dire across the Midlands and Wales.

This reflects both the pattern of job loses during the recession being concerted in manufacturing – despite the origins of the crisis in the financial sector – and the relative dependence of those regions on public-sector employment, which will be hit hard by the spending cuts presaged in the Chancellor's emergency Budget in June. Northern Ireland is another region which has suffered a dramatic switchback in fortunes, for the worse, with the "peace dividend" housing boom of a few years ago now firmly in reverse. The province may also suffer disproportionately from the Government's deficit-cutting.

Within London, "ultra-prime"(£5m plus) homes are attracting foreign interest, creating a unique economic micro-climate.

The Nationwide's latest house price index suggests the quarterly rate of house price growth dropped from 2.2 per cent per quarter in the three months to December 2009 to 1.6 and 1.8 per cent in the first and second quarters of this year. The Halifax index broadly suggests a similar adjustment to prices. The latest statistics from the Department for Communities and Local Government are published today.

In the longer term, many experts are forecasting little recovery in house prices for many years – thanks to the gloomy outlook for the economy and continuing problems with bank lending. This has grim implications for those hoping that appreciating real estate will fund their retirement.

The National Institute of Economic and Social Research said last week that property prices, adjusted for inflation, would be lower in 2015 than now, and would fall next year. PricewaterhouseCoopers said last month that there is a 70 per cent chance that UK house prices will still be below peak 2007 levels in 2015 in real terms, despite a continued expected recovery in house prices in cash terms.

Even in 2020, say PWC, there is a 50 per cent chance that real house prices could be below peak 2007 levels.

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