Paul Diggle, property economist at Capital Economics, says the Office of Budget Responsibility prediction of a 3.1% fall is modest.
He says: “Unlike the OBR’s forecast of a relatively modest decline of 3.1% in house prices in 2011, we believe that a more 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 further falls in house prices difficult.
“But with access to credit still very constrained, demand dropping away quickly, and selling conditions deteriorating noticeably, we expect the rate of decline of house prices to accelerate next year.
“What’s more, public sector job losses as a result of the fiscal contraction, which we think could be more than double the revised 330,000 estimated by the OBR on Monday, will also weigh on house prices.
He adds: “2010 was a year in two halves in terms of house prices. Modest growth in the first six months was largely still a reflection of the supply shortages which characterised 2009.
“But in the second half of the year, the poor fundamentals underlying the housing market have weighed on prices, reversing the rises seen in the early part of the year. It now seems probable that 2010 will be one of just six years in the past three decades in which nominal house prices have fallen on an annual basis.”