House Prices To Fall By 5.5% in 2008

A study says that in 2008 Britain will experience its first annual house price fall since 1995.

The study comes from the Centre for Economics and Business Research (CEBR), forecasting that the average house price will fall from just under £200,000 by £11,000 to £188,000. However, the bad news of the 5.5% decline in 2008 will be followed by a return to rising prices in 2009.

According to the CEBR there are three factors which will mean that prices will fall.

The first factor is the credit crunch which, it says, ‘will continue to restrict mortgage approvals’.

The second is that house prices have risen so much in the last decade that they are now over-valued, and are higher than buyers can afford to pay.

Thirdly, households are struggling with home finances, in the light of rising fuel costs, food prices and mortgage increase. Inflation is high, taxes are on the increase, but wages are not rising as fast, making people reluctant to take on more debt on their home.

All these factors point to a declining housing market, but it will be held in check to some extent by a housing shortage, and the likelihood that interest rates will be lowered more than once during the year. Another factor will be immigration which will have the effect of increasing demand in some areas.

Following a 5.5% drop in house prices in 2008, the CEBR forecasts that they will rise again by 3% in 2009, and at even quicker rates in subsequent years.

Jonathan Said of the CEBR said that there was no need to overplay predictions of a house price crash.

Another study has shown house prices have fallen for the fourth month in a row. Hometrack’s latest figures show a drop 0.3% for January, with 0.4% falls in London and the South West.

Although fewer homes are being put up for sale, it is now taking an average of 8.5 weeks to find a buyer – the highest figure ever known since the survey began in 2001