UK Residential Property Prices to Fall Further in 2009

Reuters have conducted a poll amongst analysts from different banks, consultancies and investment firms and the results forecast an obscure future for the residential property market in the UK, compared to the indicators obtained last year from similar studies.  It is expected that house prices keep on falling in 2009 despite the measures adopted by the Bank of England.

UK housing market will continue falling down a 12{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} by the end of next year -making a total fall of 15{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} in the residential property solely this year, and it seems that a full recovery will take longer than expected. These alarming results mean that a fall of 25{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} will reduce the average property value in £50K, based on a peak average house price of just under £200,000 struck in August 2007 using the Halifax index.

“Although the housing market correction is a necessary evil, the credit crunch is exacerbating the speed of the correction,” said Peter Dixon, economist at Commerzbank. “We are now beyond the stage of interest rate cuts bailing out the housing market – we are in the midst of a wholesale rebalancing of the economy, and the housing market stands right at the heart of the problem.”

The Bank of England along with other central banks have cut interest rates trying to re-establish the situation.  What is more, it is anticipated that the Bank will slash another 1.5{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} to 3.0{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} during the summer, making a lower-record rates since the middle of last century. However for most analysts participating in the poll, these measures would help to correct the fall of property prices in the short run, what it has been overlooked is the fact that these prices have been overvalued even after the continuous falls of more than 10{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} last year.

“It may make them fall a little less quickly than if rates were kept on hold,” said Andrew Brigden at Fathom Consulting. “But aggressive cuts would not change the extent to which the UK housing market was overvalued, and hence would not change the extent to which UK house prices need to fall.”

The house prices figures and forecasts were based on the Halifax and Nationwide indexes and also the Department for Communities and Local Government (DCLG).