House prices to drop 10% in 2009

Wednesday 24th December 2008

House prices will end 2009 25 per cent lower than the peak of the market, according to new analysis.

The Royal Institution of Chartered Surveyors (Rics) predicts a 2009 still defined by house price falls – with a ten per cent drop over the year.

Simon Rubinsohn, Rics chief economist, said: “Lenders are likely to remain cautious in the near term in the absence of any ‘guarantees’ on mortgage backed securities.

“This, coupled with an increasingly gloomy economic picture, suggests that house prices will continue to decline in 2009.”

However, the body forecasts a ten per cent rise in the number of housing transactions, as the number of buyer enquiries is now starting to rise.

But much still remains on whether mortgage lending will ease in the coming year, so buyers can take advantage of the lowest interest rates since the 1950s.

Mortgage approvals are currently hovering just above 30,000 per month compared to the 129,000 seen at the height of the most recent boom in November 2006.

“With lenders likely to remain generally cautious for some time to come and the economy heading deeper into recession, early relief for the housing market seems improbable,” the report found.

The Rics report also highlights the problems over the economy and how they will affect the property market.

It states: “A sharp rise in unemployment will inevitably have some impact on buyer confidence, depressing transactions. At the same time, the downturn threatens to push up repossessions and forced sales, increasing stock on surveyors’ books.”

House building is also expected to drop further. Rics predicts that new housing starts for 2008 are unlikely to be much above 110,000, a figure far lower than recorded during the recession of the 1990’s.

Home building output is set to plunge to a new low in 2009 with new starts expected to fall comfortably under the 80,000 mark.

Rics claims this low level is house building is planting the seeds for even house price volatility in the coming years. It also blows the government's target for building two million new homes by 2016 to the wind.

Mr Rubinsohn added: “A major concern is the massive reduction in the number of new homes now being built.

“It is likely that there will be even fewer new starts in 2009 leading to a very real risk that a serious housing shortage will fuel another bout of volatility once the current crisis eases.

“Crucially, the policies are not yet in place to create a vibrant but sustainable housing market in the future.” 

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