Hearts would have skipped a beat last week on reports that by 2015 there is a good chance that homes will be worth less than they were in 2007.
Published: 3:40PM BST 16 Jul 2010
Are house prices set to fall again?
PricewaterhouseCoopers said there was a 70pc chance that British house prices would be below peak 2007 levels in 2015 in real terms, despite a continued expected recovery in prices in cash terms – in other words any rise in property prices won't keep pace with inflation.
Even in 2020, after five years of predicted relatively steady growth, the accountants warned there is a 50pc chance that "real" house prices would be below 2007 levels.
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John Hawksworth, head of macroeconomics at PwC, said: "The possibility of a renewed fall in house prices over the next few years cannot be ruled out as mortgage interest rates start to rise again."
And it all seemed to be going well. The price falls that followed the credit crisis appeared to have bottomed, with prices steadily rising over the past year or so. The stamp duty holiday for homes priced under £250,000 has played its part in the recovery.
But the mood has changed. According to Halifax, average house prices have fallen in each of the past three months. Last week, the Royal Institution of Chartered Surveyors (RICS) added to the woe by revealing that sellers are outnumbering buyers. This is the reverse of last year, when a shortage of sellers helped kick-start a the recovery of the market.
If sellers continue to outnumber buyers there is a strong likelihood that prices, already slipping, will fall further. The RICS survey said that 27pc more chartered surveyors reported a rise rather than a fall in people putting their houses on the market, up from 22pc in May and the highest reading since May 2007 – a few months before the market crashed.
But what do other economists and property experts think? We spoke to a dozen analysts; half expect house prices to be flat over the year, with many reluctant to predict too far ahead. Three expect prices to be up over the calendar year (but flat from here on in) and three expect prices to fall by between 2pc and 6pc.
Staying flat does not mean these experts are not expecting a fall. Prices have climbed 6pc since January, which means that when experts say they expect prices to stay flat over the year, they are actually saying that prices will fall from here back to where they were in January.
Howard Archer at IHS Global Insight said: "House prices are likely to be erratic over the coming months and will probably be only flat over the rest of 2010. It is hard at this stage to be optimistic about prices in 2011, as the fiscal squeeze will kick in, which will hit people's pockets and lead to job losses in the public sector."
House price forecasts are headline grabbers – but forecasters do get it wrong. For example, in the autumn 1990 an economic adviser at Abbey said: "We anticipate a modest recovery next year, or at least a positive growth in house prices.'' Prices went on to fall in four of the next five years.
In 2004, many experts were forecasting a property crash, claiming house prices had risen to unsustainable levels. But prices rose by 15pc in 2005, almost twice the annual average of the previous 20 years.
At the start of 2009, long-time property bear Roger Bootle, from Capital Economics, predicted that house prices would fall by a further 20pc, leaving them about 35pc below their peak – but average prices rose by 5.9pc, according to the Nationwide House Price Index.
Yet not one of the dozen experts we contacted this week believes that prices will rise during the second half of the year, with unemployment set to rise once public sector spending cuts get into full swing.
For many would-be sellers, it seems a bigger gamble to hold off in the hope that the market will continue to improve, than to sell now given the recovery in house prices and an improvement in the mortgage market.
And for those looking to remortgage, now could be the optimum time. The mortgage market is recovering from the credit crunch. Fixed rates have been falling (they are now close to seven-year lows) and lenders have been relaxing criteria so even those with a 5pc deposit can now get a loan.
But new proposed affordability tests could make it harder for people to get the size of mortgage they expect, while this month the Bank of England warned mortgages would be harder to obtain in the next three months amid fears of a "deterioration in the economic outlook".
In short, this could be as healthy as the housing and mortgage markets get for quite a while.
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/7894731/Are-house-prices-set-to-fall-again.html
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