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Prices forecast to fall by up to 10% as new buyers hit a two-year low

House prices could plummet by 10% next year, analysts are predicting.

A number of forecasts were made last week about house prices in 2011, with predictions of falls ranging from 2% to 10%.

Capital Economics is predicting the biggest drop at 10%, with the Office of Budget Responsibility predicting a 3.1% fall and Home-track 2%.

Paul Diggle, property economist at Capital Economics, says the OBR’s prediction is modest.

He says: “Unlike the OBR’s forecast of a relatively modest decline of 3.1% in house prices in 2011, we believe a significant fall next year, perhaps of 10%, is plausible.

“Looking ahead, the continued boon to home owners from the favourable level of interest rates makes predicting the pace of fur-ther falls in house prices difficult.”

But he says that with access to credit still constrained, demand dropping and selling conditions deteriorating noticeably, Capital Economics expects the rate of decline to accelerate next year.

The OBR is predicting that after a fall of 3.1% in 2011, house prices will rise by 1.1% in 2012, 3.7% in 2013 and 4.3% in both 2014 and 2015.
Meanwhile, Hometrack is predicting a fall of only 2%.

Estate agents have reported a 4.3% fall in the number of new buyers registering in November, which is the steepest decline since January 2009.

Richard Donnell, director of research at Hometrack, says: “In the months ahead vendors will need either to reduce prices or withdraw property from the market.

“It is a process that will run over the next three to six months and will result in a gradual tightening of supply.”

But he says this will help to stop prices from falling further in 2011 as there will be a lack of supply.

Prices fell 0.3% in November, according to the latest Nationwide house price index, taking the average UK house price to £163,398.

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