No recovery for UK residential property market in 2010, report predicts

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Recent optimism that a recovery in underway in the UK residential property market is scorched by a new report looking ahead to 2014.

It predicts that although house prices will be 2% higher at the end of 2009 than at the start of the year, there will be modest price falls in 2010 and limited rises in 2011.

No concerted recovery is expected until 2012 with the improvement being led from London and southern England, according to the Residential Property Market Forecast 2009-2014 from Knight Frank.

‘The excitement caused by rising prices in recent months has hidden the fundamentals that have contributed to this performance, particularly the degree to which the affluent and equity rich have led the market,’ explained Liam Bailey, head of residential research at Knight Frank.

‘There are good reasons why we ought to expect a slow down in price growth, with prices even falling in 2010. However we believe that this reversal will follow a more benign scenario, rather than a more cataclysmic alternative,’ he said.

Analysts believe that a weak economy will feed through to lower household wealth and both the ability and willingness to bid up house prices. Continuing growth in unemployment, allied to wage freezes and tax rises, and a rise in average mortgage rates will force a number of sales which, in the absence of greater depth of demand, will see prices slipping back.

However, they believe that price falls will be capped at around 3% in 2010. ‘It would be wrong to expect a continuation of the current rapid recovery in the housing market as the economy is not in a position to permit this in the short-term. Similarly, it would be wrong to expect carnage,’ said Bailey.

‘Real demand is strong, supply in the wider market and the new-build sector is very low and we are unlikely to see a rapid shift away from a low interest rate environment,’ he added.

The report indicates that strong demand from UK and international buyers will ensure that the central London property market, in particular, will continue to outperform in 2010. ‘However, the central London market will not entirely escape the future uncertainty we are forecasting for the mainstream UK market, and recent strong price growth is unlikely to be maintained. However the positive factors underpinning the capital’s prime market should serve to ensure that price falls are avoided next year,’ Bailey said.

The report forecasts annual growth of 3% in central London prices in 2010, with a steady increase in this rate to 9% in 2011. The aggregate growth for central London in the five years to 2014 is put at 38%, compared to 19% for the UK mainstream market.

London will benefit from the global economic recovery, which is likely to considerably outpace that seen in the UK with Sterling expected to remain relatively weak into the medium-term, encouraging international demand. ‘The economic prospects in central London are brightening more rapidly than elsewhere in the UK,’ the report concludes.

 

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