House prices to fall 10% in 2010

Published:  14 December, 2009

LONDON: House prices will fall by 10pc next year, according to a leading economist.

Ed Stansfield of Capital Economics consultancy, cast doubt on the sustainability of this year's rises and said any bad news on the economy or unemployment could send the market into reverse.

House prices have jumped more than £13 000 since their low in April this year to an average of £167 600, according to the Halifax house price index.

Mr Stansfield said: "We expect house prices to fall back by about 10% next year. We are suspicious about whether this year's price rises are meaningful.

"The rebound we have seen seems odd given the economic background, while the level of transactions has been very low.

"The market has been driven by a few cash-rich buyers, including first-timers with access to the 'bank of mum and dad' and overseas buyers who have been taking advantage of the weakness of sterling to snap up properties, especially in London.

Mr Stansfield said that any shock to sentiment could wipe out this year's gains. One factor supporting the housing market had been the relatively mild rise in unemployment, he said.

"If employers continue to avoid laying people off, our forecast of a 10% fall in house price could turn out to be pessimistic," he said.

"But if the economy fails to recover, companies may feel they can no longer keep people on. Our hunch is that considerable job losses are in the pipeline.

"But even if we are wrong and the recovery turns out to be stronger than we expect, the housing market looks vulnerable to the increase in interest rates that would be triggered by a strong recovery."

Transaction levels could continue to rise very slowly, he said, although there would be no return to the levels seen at the end of 2008.

"The most we are likely to see is an improvement of 5% to 10%. The more liquid the market, the more faith we can place in the house price indices."

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