The UK’s housing market is five years into a 17 year slump as prices remain flat for another two years and likely to recover very slowly, according to accounting group PricewaterhouseCoopers.
Its latest analysis of the residential property market makes gloomy reading with its conclusion that prices will not return to the pre-crisis peak until the middle of the next decade.
In cash terms, average UK house prices are projected to be broadly flat for the next couple of years, but then recover gradually later this decade as supply shortages reassert themselves.
Average UK house prices are not projected to return to 2007 peak levels until around 2017 in cash terms, or around 2024 in real inflation adjusted terms.
The firm says that single first time buyers are going to be unable to buy a home without financial assistance from their parents or families until they are in their late 30s.
By 2020, the analysis suggests that a gradual easing of credit conditions, combined with housing supply shortages, could push average UK house prices back up to almost 30% above their 2007 levels in cash terms. However, this would still be around 7% below their 2007 peak in real terms once inflation has been taken into account.
‘Over the next couple of years, we expect the UK housing market to remain relatively flat while economic uncertainty persists, particularly in relation to the eurozone crisis. This will also dampen down growth in consumer spending over this period,’ said John Hawksworth, chief economist at PwC.
‘House prices should recover later in the decade as confidence is gradually restored, credit conditions ease for first time buyers and underlying housing supply shortages reassert themselves. However, as house prices are likely to stay high relative to earnings by historic standards, and credit is likely to remain less readily available than before the crisis, we estimate that a single person leaving university today is unlikely to be able to afford their first house until their late 30s without financial assistance from their parents or others,’ he added.
Overall the property market is suffering as a result of the UK’s poor economic outlook.
‘Recovery in the UK has stalled over the past year as the eurozone crisis has taken its toll. However, while official data suggests that the economy fell back into a technical recession in the first quarter of 2012, labour market and business survey data suggest continued modest growth,’ explained Hawksworth.
‘A positive development has been lower inflation, which we expect to fall back towards its 2% target rate over the next year unless there is a significant resurgence in global commodity prices. This will boost real consumer spending power, which was severely squeezed in 2011 as prices rose much faster than earnings,’ he added.
However, the outlook for the UK as a whole remains cloudy with GDP broadly flat in 2012 but picking up in 2013.
‘We expect London and the South East to lead this gradual recovery, but all regions are projected to see at least moderate average growth in 2012 and 2013. However, risks from further storms in the eurozone need to be taken into consideration and businesses should make appropriate contingency plans for this,’ concluded Hawksworth.
Many homeowners who bought at the peak of the market, often with huge mortgages, are now in negative equity because the property is now worth less than the loan.