Mortgage News House Prices Will Fall 50 Per Cent In Four Years 1716

House prices will fall 50% in four years

09 June 2008 / by Rachael Stiles
The current trend in falling house prices will continue until they are worth just half the amount they were before the credit crisis.

The average price of a house in Britain will fall 50 per cent in the next four years, and will not recover its value until 2017, according to The Guardian’s evaluation of the Halifax House Price Isdex, with a 10 per cent decline this year and a similar drop in 2009.

Lord Oakeshott, Treasury spokesman for the Liberal Democrats, said that these figures reveal a lack of confidence in the market. “The Government says this housing depression will be different from the early 1990s’,” he said. “Yes, that’s right: it will be worse.”

He also said that, while unemployment has only just started rising and it is not likely to reach levels seen in the 1990s, household debt is “far worse – 40 per cent of British households have negative monthly cash flows.”

The decline in property value is also being reflected in the house-building market; house builder Persimmon has said that it has stopped building on new sites for the time being.

Building companies are reportedly starting to waterproof properties that are currently under construction and then deserting them until the market improves. Industry experts have said that this decline is marking a return to a more traditional property construction model, whereby companies sell a few homes before starting work on new ones.

The Royal Institute of Chartered Surveyors (RICS) reported in its construction survey for the first quarter of the year that construction workloads were at “the worst level since 1996”, and that the worst hit part of the industry was private housing, with “workload growth turning negative for the first time since 1999”.

“Growth in the construction industry has slowed abruptly in the first quarter of this year,” RICS senior economist, David Stubbs, said. “Private residential workloads are now shrinking as homebuilders react to challenging conditions in the housing market by reducing the number of new homes under construction.”

Professional services provider KPMG has pointed to the decreasing value of land as a catalyst for new-builds losing their momentum, with many that were bought in the last few months unlikely to turn a profit which, according to experts, will cause large asset writedowns.

Martin Ellis, chief economist at Halifax, said that the decline in house prices is “caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability. These factors have curbed housing demand. High employment levels, low interest rates and a shortage of new homes support housing valuations.”

© Fair Investment Company Ltd

Written by Editorial Team