Residential property prices in the UK will not return to the peak reached in autumn 2007 for at least another five years and recent increases are a ‘false dawn’, it is claimed.
According to a report published today (Monday) by Ernst & Young’s Item Club, an influential group of economists, prices will start falling again at the beginning of next year as the market is being propped up by cash rich buyers who will dwindle away by the end of the year.
It points out that core buyers such as first time buyers are not returning to the market in any great numbers and the continued grim outlook for unemployment as well as lack of finance means they will continue to stay away.
It describes recent rises in property values as a ‘false dawn’ that will not last beyond spring 2010. Prices will fall then rise slightly in the second half of the year followed by two years of stagnation, the report says.
It predicts a double dip with prices falling by 1.6% in the first half of 2010 and then rising again by around 2.8% over the second half of the year.
‘A small number of cash-rich buyers have supported prices, but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year,” said Hetal Mehta, economic advisor to ITEM.
In stark contrast to other forecasts from the Nationwide building society and the Royal Institution of Chartered Surveyors, ITEM says that overall in 2009 house prices are likely to fall by 11.4%. Nationwide has reported house price rises in five of the last six months and having originally predicted overall negative price for 2009 now says it expects prices to have risen 5% by the end of the year.
The report points out that first time buyers are essential for an improvement in the market. ‘In order for the housing market to function properly it is essential that first-time buyers are bought back into the market, else the current status quo of a low number of transactions, dominated by speculative cash buyers, is likely to be maintained,’ it says.
And it says the effects of rising unemployment, which currently stands at about 2.4 million, and weak earnings growth should not be overlooked.