Where Will Property Prices Go in 2008?
How will property prices fare in 2008?
The second half of 2007 saw a slow down in the housing market, and most experts are forecasting stagnation or even a fall in 2008.
David Miles, chief economist at Morgan Stanley, has warned that house prices may drop by 10% in 2008, saying that much of the rise in house prices has been because they've gone up as they were expected to do. Now, however, a fall is coming, but it's not necessarily a bad thing, as it may bring affordability back into the reach of more people.
Even the International Monetary Fund felt compelled to comment, saying that UK house prices were 40% overvalued, leaving them vulnerable to market volatility. House prices in the UK now stand at nine times average earnings - much higher than the five times in 2001. The HSBC agrees with the IMF, saying UK house prices are overvalued by 30%.
A poll in December showed a loss of confidence in the property market as just 20% believe that average house prices will increase in 2008. Three-quarters of respondents expected property prices to fall in the next 12 months, and just over half thought that prices would drop by over 10%. In the poll, for website This Is Money, just under 20% expected house prices to rise in 2008, and 6% reckoned they would be unchanged. A similar poll 12 months ago showed that 55% believed prices would go up in the year.
Continual bad news throughout 2007 - further interest rate rises, sub-prime crisis, credit crunch, Northern Rock, stagnating house prices - has eaten away at confidence in the housing market. During the year house prices rose to record levels, with the Halifax average house price reaching £199,600 in August before dropping back to £194,895 in November.
Forecasts from the Royal Institution of Chartered Surveyors also suggest that house prices will struggle in 2008. Although prices may end 2008 hardly changed from now, when they fail to rise, first-time buyers will begin to enter the market to help buoy prices.
RICS chief economist, Simon Rubinsohn, said: "2008 will prove a difficult year for the housing market, but with falls likely in the base rate, the housing market should be provided with a stable platform. The effect of the credit crunch will dissipate slowly meaning that those seeking to obtain finance in the first half of 2008 may struggle. However, the employment picture should remain firm throughout the year, helping to prevent significant numbers of repossessions and the subsequent influx of supply into the market. This should ensure that house price growth remains broadly flat over the course of the year."
Nationwide figures suggest that prices suffered falls for the second successive month in December, down by 0.5% in the last month of the year. Annual house price inflation was brought down to 4.8% as a result, the lowest figure for 19 months.
Chief economist at Nationwide, Fionnuala Earley, said: "Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year."
House price falls are likely to vary by region in 2008. London could now be in for a fall with spread betting in the City suggesting a 15% fall in London prices is possible. Current London average price is £320,000, while the national average is around £195,000, by Halifax figures.
Forecasters and punters are not always right, of course, but it is hard to see anything but a 'correction' in 2008. Pockets of regional rises may be seen, but the overall picture has to be one of a fall in house prices, probably between 3% and 5% across the country.
Published on January 1, 2008
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