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House prices to fall 10% by 2013

Weak economic growth and falling employment will cause house prices to fall 10% by 2013, according to Capital Economics.

In a Q4 housing market report, Capital Economics predicts that house prices will decline by 5% in both 2012 and 2013.

And it says that the threat of another major financial crisis and a return to recession mean that risks to its forecasts are to the downside.

The report says that the UK’s economic recovery weakened noticeably in Q3, while employment growth has turned negative once and again and further job losses are on the horizon.

It says: “Against this backdrop, house prices have further to fall. While traditional valuation metrics are not a perfect guide to the scale and timing of future price movements, they suggest that housing is overvalued by up to 20% relative to historical norms.

“Admittedly, mortgage approvals rose to a 20-month high in August, but housing market activity remains well below the level that historically has been consistent with rising house prices. And if anything, the renewed slump in consumer confidence suggests that fresh falls in mortgage approvals are likely.”

Capital Economics adds that low mortgage rates have been supporting lending volumes, but they could soon start to rise as a result of the eurozone crisis, stifling demand.

It says: “Even without higher mortgage interest rates, households are rapidly approaching the point at which the benefits of previous interest rate cuts will have been completely eroded by the rising cost of living.”


Housing supply falls as demand increases

Fewer vendors put their homes up for sale during September, as fears over the economy continued to impact negatively on the housing market, according to the Royal Institution of Chartered Surveyors.


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  • J 30th June 2012 at 10:40 pm

    The market is being fuelled by greed of landlords who have sucked almost all FTB property off the market, put together with banks not lending despite the historically low interest rates. Solution for the good of the country is to force banks to lend to good (solvent etc) people, tax buy to let earnings at 40% and do not allow tax relief on BTLet. In common with other countries rents should be set per square metre by local authorities.

  • Steveo 17th October 2011 at 1:06 pm

    It’s quite simple House prices have already fallen around 25% since 2007. Quantative easing has ensured the continuing presence of inflation and a low base rate, which has protected the nominal value of house prices – thus insulating property owners from the effects of negative equity.

    The economic reality is somewhat different though. This protectionism of prices coupled with a widespread tightening of credit and a lack of wage inflation, has excluded many first time buyers from the market.

    The 25% drop that I mentioned is the real value of property in terms of what those outside of this property pyramid would be willing to pay to get in.

    The longer this stand off continues, the more prices will fall – as more and more sellers scramble for fewer and fewer buyers.

  • Russ 17th October 2011 at 12:17 pm

    Is this from the Daily Mail school of doom?
    Pathetic scaremongering.

  • Ketan Yadav - Avenue & Co Private Finance 15th October 2011 at 9:38 am

    House prices outside London could fall by as much as 20% and inside London – up to 10% – and I believe the estimate is fairly accurate.

    Factors causing this are: More stringent lending criteria (this, I belive is the biggest factor), lender affordability calculations (repayment only above 75% LTV), lack of buyers combined with inability to sell current property, oversupply in some regions, higher taxes and inflation (cost of living), falling incomes in real terms (vs inflation) and rising unemployment. The willingness to buy is there but for the first time I can recall, many of my clients are simply too scared to commit right now with the Euro debt crisis taking hold. However, BTL and prime London is booming as wealthy buyers with big deposits and experienced landlords take advantage of more products, better rates etc. Landlords are benfitting right now with rising rents and huge demand with limited supply. Many have the equity to take advantage of low rates and remortgage deals. In addition, many lenders offer sub 3% deals at below 70% LTV vs Average lender SVR of around 4.75% today.

    No one knows what will happen, but landlords will always win.

  • alex 14th October 2011 at 9:55 pm

    Luke, as far as I am aware inflation has mainly effected the pound falling in value by 30 percent against gold and thus imports from different currency zones have increased in price due to a less valuable pound.

    This has also made shipping, farming and any business product reliant on imports more expensive. This increased cost is passed on to you and me at the till. So people are spending the debased money not on buying houses, but on increased day to day living costs.Hence the inflating food bill or decreased product size. And not being able to take out large mortgages.

    Really though all these symptoms of inflation are market noise and confuse people causing fear.

    Have a read of this very well written.

  • Luke Atkinson 14th October 2011 at 12:27 pm

    Sorry Roberto, am I missing something here in your economics?

    Surely if inflation has been 15% over the last 4 years, houses have got more expensive in real terms, not less expensive? Surely a rise in inflation would offset any dip in house prices?

    For example if house prices fell 15% and inflation was 15%, there has been no real dip in house prices?

    Or am I, as the ”man in the street”, not computing such things?

  • Lesley Jarrad 14th October 2011 at 9:16 am

    Rules of supply and demand along with high rents will prove these predictions wrong. You have to live somewhere whether you rent or buy. And high LTV mortgages are not as difficult to obtain as some make out.

  • Roberto 13th October 2011 at 11:30 pm

    Alex, I am surprised that house prices have hung on for so long, if you own a house you can thank the banks for holding interest rates down and giving you a chance to sell up,like the MP’s have been.
    Essentially he government bailed out banks and mortgage holders. Sellers simply refuse offers is seen as prices remaining high. But I bet that offers have fallen a long way. The policy of this and the last govt to maintain ultra-low interest rates has allowed those sellers who refuse to accept the current market in preference of the hope that 2006 world will reappear are allowed to do so. The result is a stagnant market that orthodox economics has no answer to.
    But nominal prices have fallen about 16% (avg between Halifax, Nationwide and official figures) in four years, inflation has amounted to about 15% in that time, so real prices are down 31%.

    Your man on the street does not compute such things, and does not see that prices are down and more affordable. But prices needed to fall 50% from the high to become sustainable. So another 20% fall may be enough. The govt would probably prefer that at 10 of that be inflation. I predict nominal prices to fall 10-15% over 2 years, and as long as the wider economy improves, for prices to stabilise in 2014. I also hope for a govt that tries to control prices from going up, not just going down in future. this is no way to run an efficient, wealth-producing economy. It is a bankers’ bonanza at our expense.

  • alex 13th October 2011 at 5:29 pm

    I am surprised that house prices have hung on for so long, if you own a house you can thank the banks for holding interest rates down and giving you a chance to sell up,like the MP’s have been.

    No matter how optimistic we are reality has to be faced and prices need to come down significantly. Not only so new buyers can be tempted into the market to help get thinks moving again, but also so employers can justify paying less or hiring more people. Due to employees reduced living costs.

    Quite what effect the recently announced monetary injection is going to have is unclear, but I would guess that the pound will take another hit, making the market look more attractive to holders of non-sterling wealth.

    Things are still rosy and a barrel of oil is still extremely under-priced being 4 peoples work for a year,

    Sure a lot of people are annoyed at present with their personal situation but responsibility lies not only with the financial institutions but with the individuals who use them and sustain them. We are the only currency, flesh and blood.

  • Kia 13th October 2011 at 3:05 pm

    Has anyone checked out 100% mortgages? I have found one from Arun estates who umbrella Douglas Allen You have t o get a guarantor but it makes it a lot easier to get onto the property ladder because there is no deposit. What do you think?

  • Robin de villiers 13th October 2011 at 2:37 pm

    They are not exactly going out n a limb here. The economic indicator they are using is the average house price in proportion to the average wage. This has historically averaged about 3.5. At the moment it’s over 6. This is a reality; an economic law much like gravity. However much yoiu may wish to talk up house prices or try to ignore the imbalances, the illusion that house prices can stay suspended at these levels is impossible. If yui doubt this imagine for a moment that the house price increases had continued for a other decade. 300 % increase compounded on 300% already in place. That comes to 900%. Now imagine house prices costing 18 times the average wage. At this level you would never even cover interest payments on the mortgage. What is happening today is a housing crash disguised behind high inflation. This makes us all poorer, rather than the few who made irrational, greedy and hasty choices.

  • Roberto 13th October 2011 at 2:07 pm

    FTB’s ability to buy is not based on 2.5 x income, it is based on prevailing interest rates.

    No, it is based on how much money they have and how much they can borrow. Prices rose in the boom because lenders lenders lent so much, indeed the most common application became self-cert (widely known as liar loans). Banks and agents knew full well that people were lying on applications about their salaries, as that was the only way to get a loan to get near the asking price. As meveryone was doing, prices went thru the roof. Was it sustainable? My answer is, what happened to Northern Rock, Alliance & Leicester, Bradford & Bingley, HBOS, RBS? The biggest financial crisis in history. so, er, no?
    Banks do not want to know unless they have a 25% deposit.
    That is often irrelevant anyway, as you’re 4x earnings often does not meet the 75% part anyway. If your salary is £40k and the asking price is £300K, then you’re gonna need £140k deposit (whether that is 25% deposit is irrelevant). The problem is simple: high asking prices that cannot be met unless we go back to the lax lending that has broughtdown the western world. Seems a large price to pay for someone’s greed or stupidity.

  • Luke Atkinson 13th October 2011 at 12:59 pm

    I agree with the majority of the comments, Capital Economics also predicted a 15% drop last year, which never materialised.

    However, and I imagine the Anon crew will label me negative for this, I agree with the point they make regarding the effect the drop in interest rates has had and how it has been eroded by other factors. The cost of living is increasing rapidly, inflation continues to rise, fuel and energy prices continue to rise, salaries are at a standstill and those that are seeing annual increases are way below the rate of inflation.

    An interest rate rise will be cataclysmic for the housing market for the reasons mentioned above…not to mention the thousands of people with Sub Prime lenders sitting pretty on LIBOR and BBR SVR trackers who will not be able to remortgage away due to arrears/bad credit once their mortgage payments start to rise.

  • Firmbutfair 13th October 2011 at 12:59 pm

    Why is it that we cant even decide if rising house pricers or falling house prices is good? I don’t acctually care but they strike me as very expensive. I think i will live abroad.

  • Tony 13th October 2011 at 12:34 pm

    It strikes me that we have an lot of air time and press coverage on the ‘whats wrong’ bandwaggon but hardly anyone providing a solution or positive slant on some of the really good things those at the sharp end are doing to drag ourselves out of this. My challenge to the commentators is what have you done today to improve our collective lot?

  • bobby 13th October 2011 at 10:28 am

    FTB’s ability to buy is not based on 2.5 x income, it is based on prevailing interest rates and as such buying now has never been better. The problem is lenders do not want to know unless they have a 25% deposit, Sure there are products about 75% but they do not lend on them.

  • David Tyler (apprentice soothsayer) 13th October 2011 at 9:55 am

    Another report using selective historical statistics to justify a predicted outcome in unprecedented times.
    They might be right and I guess if we all get too negative they will be, but there are so many unknowns that any prediction is not much more than a guess, as previous ones in the last couple of years have proved.
    The lack of new building and increasing demand, for example, might suggest other outcomes.
    On the other hand, there are many who will regret previous beliefs that “you can never lose out on Bricks and Mortar”.
    As I have said too many times, my crystal ball broke some years ago.

  • Gerard McCreath 13th October 2011 at 9:13 am

    Why do you continue to publish predictions from these clowns. They cant seem to make their minds up about what will happen in the future. I have yet to see them stick by any of their predictions and if you forecast everything you will be right eventually.

  • David Lawrenson 13th October 2011 at 8:33 am

    If you keep saying something will happen long enough and often enough then you will be proved right in the end.

  • First Time Buyer. 13th October 2011 at 8:09 am

    The Average house price was manipulates to rise by 300% in just ten years. Over that same period, the average wage rose by just 6.5k.
    You could take 50% off and they would still be overpriced against all historic measures of affordability. End of.

    FTB will return when we see the cycle return to 2.5x salary of an INDIVIDUAL.

  • KS 12th October 2011 at 6:25 pm

    This sort of news should help the economy. NOT

  • Tom Cleary 12th October 2011 at 5:38 pm

    This company only deal in scaremongery and sensationalism. Has anything they have ever predicted actually come true!?

  • Micky 12th October 2011 at 5:35 pm

    You irresponsible ignorant idiots!

    Just the optimism the market wants to hear. I’ve got an idea, lets say every company will go out of business too.

    This type of scaremongering makes me sick as the public will read far too much into this.


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