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House price crash to last 5 years

Monday, 27 October 2008 6:01 PM

House prices will fall to 2004 levels losing on average £50,000 of their value by the end of next year.

The Centre for Economics and Business Research (CEBR) predicts a 25 per cent drop in prices from the third quarter of 2007 to the end of 2009.

This fall comes despite the expectation of interest rates to fall one per cent by Christmas 2008 and the Bank of England to cut the cost of borrowing to two per cent next.

The thinktank - which admits a bullish outlook on property - maintains the shortage of supply in the housing market and long-term demographic and economic changing will add support to the housing market.

"We expect prices to be broadly flat in 2010, after which prices will rise by around 20 per cent through 2011 and 2012," the CEBR report states.

"Prices in 2012 will still be three per cent lower than in 2007 - this compares with our previous forecast which predicted that prices in 2012 would be 15 per cent higher than in 2007."

Ben Read, managing economist at cebr, explained confidence in the housing market has been "shattered" with lack of mortgage availability leaving few sellers chasing even fewer buyers, and expectations of falling prices have become embedded.

"Now that the financial crisis turns into an economic crisis with rising unemployment and falling household incomes, we could see house price falls starting to accelerate again."

He added: "Longer term, the fundamentals of not enough growth in the housing stock, rising population, progressively smaller household size and growth in incomes will eventually reassert themselves."

The prediction comes as Capital Economics predicts a total 35 per cent drop in house prices - with house price falls running even into 2010.

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