House Price Predictions For 2008
With January's figures revealing neither a rise nor a decline in house prices so far this year, the direction of the property market for 2008 remains very much a talking point.
According to Halifax, the UK's biggest mortgage lender, recent figures still provide evidence of a continuous weakening in housing market activity. After a decade of record-breaking price increases, the UK house price growth has finally come to a slow down.
While some predict that 2008 could actually be a year which sees property prices fall, others think that prices will be flat with only a slight increase over the course of the next 11 months. However, it would seem that the end of the UK's house price boom was on the cards at the start of 2007.
The summer of 2007 marked the start of the fall in annual house price inflation, opening up with it the possibility of further declines in the ongoing months.
Ed Stansfield, a leading economist at Capital Economics said, "In view of the recent news flow from the market, coupled with growing evidence that the country is on the verge of a sustained slowdown, we have revised our price rise forecasts."
With a slowing economy, expensive fuel and food prices, stricter lending and more mortgage defaults, Capital Economics stated, "We expect house prices to fall 5% in 2008 and by a further 8% in 2009, wiping out the gains of the last 18 months."
Nationwide Building Society, the UK's second most important mortgage lender, also predicts that annual house price inflation will dwindle as 2008 comes to an end. Despite the recent cut in interest rates, many lenders believe that the property market has still not felt the full effects of the previous increases of last year. They are expecting to see up to a 15% drop in house sales across both England and Wales as the year unfolds.
In addition the Council of Mortgage Lenders has become increasingly worried about the potential shortage of mortgage money available for 2008. Following the sub-prime mortgage crisis in the US and the recent collapse of the Northern Rock bank in the UK, the credit crunch has lead to more and more banks becoming hesitate to lend to one another.
Fears have arisen that if UK banks can no longer borrow from each other to lend on as mortgages, 2008 could see a slump in house sales. However the CML has said that new mortgages will come from other financial institutions.
A freeze in lending would not only cause problems within the property market but also to the wider economy. The Royal Institute of Chartered Surveyors (RICS) is amongst those who predict a downward curve in future interest rate cuts, falling to a possible low of 5%. Further cuts made by the Bank of England should offset any short-term downturn in sales and prices with an expected result in prices being flat as the year pans out.
Simon Rubinsohn, chief economist for RICS 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."
Overall, it is expected that the first half of the year will be particularly more difficult with house sales continuing to drop. However, it is hoped that in the second half of 2008 transaction levels will improve as will prices. Employment is forecast to remain firm, pretty much throughout the year, which will have an influence on the number of repossessions and the subsequent influx of supply into the property market.
Published on February 7, 2008
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