House prices have fallen and are set to fall further as the credit crisis continues, leading economists have told the Financial Times.
According to the Financial Times, most economists questioned gave a much bleaker outlook for the housing market this year compared with previous forecasts. It seems that as the credit crisis continues and mortgage lending remains sparse house prices are set to fall further into 2008.
Various leading economists told the Financial Times that they expected house prices to fall by anything from seven per cent to the 20 per cent predicted by Capital Economics' Jonathon Loynes, who has long believed prices must fall.
According to the Royal Institute of Chartered Surveyors (RICS) the net balance of surveyors reporting falling house prices increased to 78.5 per cent in March this year compared to 65.7 per cent the previous month. And falls in house prices are "being driven by weakness in demand for property, reflecting lack of credit, rather than new supply coming onto the market."
The UK mortgage
market is currently suffering as a result of the collapse of the sub-prime mortgage market in the US, which has culminated in a global credit crisis. Banks are reluctant to lend capital to each other and are even more unwilling to lend to the millions of consumers whose fixed rate mortgage
deals are coming to an end, or first time buyers with little or no deposit.
The credit crisis has affected the housing market to the point that banks are announcing rights issues of as much as £12billion in attempts to boost their balance sheets. Additionally, the Government has revealed a Special Liquidity Scheme and made a cash injection of £50billion intended to encourage inter-bank lending and consequently boost mortgage lending.
However, it is widely believed that this action is too little too late for the mortgage market. Director general of the Council of Mortgage Lenders (CML), Michael Coogan, said: "We believe that the Bank of England's Special Liquidity Scheme will help to sustain confidence in the banking system and improve liquidity, but it is not an intervention specifically intended to re-invigorate the housing and mortgage markets.
"We hope that some of the liquidity will be recycled down into the mortgage market. But it will take some months for this to happen and the mortgage lending volumes are going to continue to fall before they improve because of the funding gap of around £30billion." Mr Coogan continued.
As housing market activity declines, house prices appear to be falling accordingly, "It comes as no surprise that approvals for house purchase have continued to decline. This will result in a substantially lower level of housing transactions in 2008 than we saw last year." Mr Coogan explained.
As the housing market experiences a slump, the Daily Telegraph today reported that estate agencies are suffering. According to research from Debtwire, the number of estate agency branches has fallen from around 13,000 at the start of the year to 12,000, a rate of about 150 closures each week.