Economists say UK housing market 'shows little sign of recovery' » Housing » 24dash.com

Economists warned today that house prices have further to fall as figures showed homes lost more than 10% of their value during the past year.

Nationwide Building Society said prices dived by 10.5% in the 12 months to the end of August, the fastest rate of decline for nearly 18 years.

Economists warned that with the economy slowing down and little sign that the mortgage famine is over, the market had not yet hit the bottom, with some commentators predicting further falls of more than 20%.

The situation could be made worse by the economic downturn, particularly if this leads to rising levels of unemployment, forcing people to sell their homes.

Fionnuala Earley, Nationwide's chief economist, said house prices looked set to continue falling for the rest of this year.

She said even a cut in the Bank of England base rate would not currently be enough to have a big impact on prices, because overall confidence in the economy and housing market was so low.

Instead, she said people would want some evidence that prices had bottomed out before confidence returned to the market.

The group, which had previously predicted "middle single digit" house price falls for this year is currently in the process of revising its forecast.

Jorg Radeke, an economist at the centre for economics and business research, said: "Today's figures defy hopes that the housing market is bottoming out any time soon."

But while the group expects prices to continue falling into the middle of next year, they have forecast a total drop between the end of 2007 and mid-2009 of just 14%.

They then expect the housing supply shortage to aid the recovery, with prices standing 15% higher by the end of 2012 than they were at the end of last year.

Recent data has provided some encouraging news on the property market, with a survey from the Royal Institution of Chartered Surveyors (RICS) showing  interest from potential buyers had risen for the third month in a row.

At the same time figures from the British Bankers Association showed the fall in mortgage lending had stabilised, prompting speculation that the housing market could be near its trough.

But anecdotal evidence suggests that rumours that the Government is considering temporarily suspending stamp duty has caused demand to dry up, as people put moving plans on hold.

Ray Boulger, senior technical manager at John Charcol, said: "I don't think we are quite there (at the bottom) yet, but there are some encouraging signs."

He said buyers were likely to stay away from the market for the next week or two, until there was some clarification on the Government's intentions for stamp duty.

He said: "Once that is resolved, particularly if it is resolved favourably, there are signs that an increasing number of people are beginning to sniff around, but it would be optimistic to expect the market to start to recover this year."

He added that for a stamp duty suspension to have a big impact on the market, it would have to apply to properties worth up to around GBP1 million.

Mr Boulger said interest rate cuts this year and early next year could also help to boost the market, as reduced borrowing costs, combined with a 15% fall in house prices, would help to improve affordability.

But he still expects house prices to fall by between 15% and 20% from peak to trough.

Oliver Gilmartin, RICS senior economist, said: "While activity indicators at the start of the homebuying process are showing some signs of stabilising, prices will continue to fall back while finance remains constrained.

"Government incentives to revitalise the mortgage market need to be enacted sooner rather than later to contain the wider impacts of falling house prices on the economy."

Capital Economics currently provides the most downbeat assessment on the housing market, forecasting house price falls of 35% from their peak last year to their trough, meaning they could still fall by a further 24%.

Kelvin Davidson, property economist, said: "The economy is looking pretty bad, and there is no end in sight to the reduction in the availability of mortgage credit. I don't think there are any bright signs."

He said he expected it to take until the second half of 2010 before the market started to recover.

The group said consumers' confidence would be further hit by the severity of the economic downturn it is expecting.