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House prices may plummet

House prices are set to tumble by 6% this year and continue to fall into 2009.

In a recent research note, Malcolm Barr, JP Morgan’s chief UK economist, says that data from the Bank of England, the Royal Institution of Chartered Surveyors and Nationwide’s house price index shows the outlook for the housing market is bleak.

Barr says: “The rapid slowing in house prices, the step-up in supply and the marked drop in price expectations suggest the liquidity crisis has encouraged home owners who were considering selling to move quickly and accept lower prices to realise capital gains be-fore they are eroded.”

The note reports a fall in mortgage approvals in recent months, stating the drop of more than 26% seen between September and December last year was the sharpest three-month decline since 1987. December’s approvals totalled 73,000, which Barr claims is the lowest since 1995.

But he says that while house buying has slowed, the flow of property coming on the market has accelerated sharply.

Meanwhile, the Council of Mortgage Lenders forecasts that house prices will rise 1% this year, as does Hometrack.

Gary Styles, strategy, risk and economics director for Hometrack, says: “We have not shifted our forecast but the real question this year is what will happen to lending volumes.”

RICS, Nationwide and HBOS predict prices will remain flat.

In last month’s Halifax house price index, Martin Ellis, chief economist at the bank, states: “Sound economic fundamentals and lower interest rates will support house prices. Nationally, we predict stable prices in 2008.”

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