A key industry body has revised its house price prediction for 2008 from “stable” to a fall of 5%.
Just six months ago, the Royal Institute of Chartered Surveyors (RICS) forecast that house prices would remain unchanged this year. That optimism has proved ill-founded as the credit crunch-inflicted gloom continues to deepen.
Now, RICS expects the average home to lose nearly £10,000 in value by year end, with a further 2% drop expected by mid-2009.
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No price crash
"The second half of 2008 will prove a difficult period for the housing market,” says RICS chief economist Simon Rubinsohn.
“Money looks set to remain tight and many will continue to find that access to the market is restricted by cautious lenders. Demand will remain pent up with many watching the high street banks for any sign of a softening in lending criteria."
Despite the downturn in its outlook, the organisation remains adamant we will not see a property crash reminiscent of the 1990s. Rather, it expects house prices to recover from mid-2009 onwards.
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Wider economy will feel the chill
In its outlook for the remainder of the year, RICS estimates that house sales will plummet by 40%, as cautious mortgage lenders hike their rates and refuse all but the lowest risk candidates.
This sharp decline is expected to trigger a cut in consumer spending of up to 8%, which in turn will impact on the wider economy.
“This (drop in sales) could have important ramifications for the economy - not only hitting the property industry directly but also impacting on a broad range of related sectors, whether high street purveyors of home furnishings and white goods or financial intermediaries involved in providing mortgage advice," explains Rubinsohn.
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Bigger falls predicted elsewhere
Such is the gloom in the property market at present that RICS is actually one of the more optimistic players.
Last week, secret cabinet documents unwittingly revealed to the public showed that the government is expecting a fall in house prices of 5-10% “at best” this year.
The most startling prediction was made by Bank of England policymaker David Blanchflower last month, when he claimed that prices could plummet by up to 33% unless drastic action is taken.
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