Economists predict gloomy 2010 for UK property prices

Residential property prices will just bump along at current levels next year, with transactions failing to hit the million mark, analysts are predicting.

The current apparent recovery in the housing market is deceptive and supported by cash-rich investors and a stock shortage rather than the first-time buyers needed to restore the market to normality, according to the latest report from Ernst & Young’s ITEM club.

The influential club’s chief economist Peter Spencer forecast that interest rates in 2010 will remain pinned to the floor and added that it is still premature to talk about the beginnings of a recovery despite growing optimism.

He is predicting some growth in the second half of 2009 but said the economy would struggle to achieve 1% growth in 2010 due to consumers being burdened by debt and tax rises after the election.

‘There could still be substantial pain to come for corporates and consumers. For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening,’ Spencer said.

Next year will see VAT returning to 17.5% and an end to the stamp duty holiday on property purchases.

Other economists are predicting that property prices will 10% next year and a further 5% in 2011 as job losses climb. According to Capital Economics rising unemployment together with mortgage illiquidity will be responsible for a new wave of property price falls.

It states in a new report that even although the real estate market is now showing signs of turning around, the recovery is unsustainable because of severe job cuts ahead in the public sector.

It also warns of a downside to a rapid recovery. ‘While we may be underestimating the potential for an economic recovery, stronger growth would be accompanied by higher interest rates. That would only add to the pressure for lower house prices,’ it said.

Its prediction of 15% house price falls in two years is in line with the warning by ratings agency Fitch which recently forecast a further 17% fall.


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