House Price Forecast
Against a backdrop of continuing euro-zone uncertainty, further declines in household income and rising unemployment levels, a recovery within the market is looking further and further away. With Halifax reporting the fastest fall in house prices in 20 months for April and leading economists predicting a further 5% fall in prices, the market is facing yet another difficult year.
The Economic Background
- Economic activity this year will be dampened although most business surveys suggest that the economy avoided a double dip recession in the first quarter of this year.
- Continuing difficulties with the euro-zone, our largest trading partner, will mean net trade in the economy is weak as the euro-zone slips further back into a recession and UK exports fall.
- Rising levels of unemployment infer a decreased level of consumer spending and consumption. With firms facing increasing pressure, a cut in labour and an increase in productivity will be prevalent.
- The historically high gap between house prices and income indicate that the housing market remains significantly overvalued.
So What Do We Think?
With leading economists predicting further falls in the housing market, and against the backdrop of unstable economic data, it is clear the UK housing market will remain subdued for the foreseeable future.
However, we do not anticipate a repeat of the slump seen in 2008. Historically, low levels of activity within the housing market have resulted in falls in average house prices. At present, we are in the unusual situation of having low levels of activity being offset by the low supply of property for sale. Although residential property is undoubtedly still overvalued we do not anticipate house prices taking a dramatic fall throughout the year.