Housing market falls seen extending into 2010

LONDON (Reuters) - House prices will fall about 11 percent this year and the market will take up to two years to stabilise despite the lowest base interest rates in the Bank of England’s 300-year history, a Reuters poll showed.

Average house prices are seen falling 10.8 percent this year after diving 16 percent in 2008 and were set to fall a further 3 percent in 2010, the poll of 37 analysts at UK banks, investment firms and consultancies taken January 12-14 showed.

Rapidly rising unemployment and a shortage of mortgage credit to new buyers is seen driving future declines in prices.

“Unemployment is going to soar in the course of this year and it’s going to increase into the first quarter or even into the second quarter of 2010,” said Matthew Sharratt, economist with Bank of America. “The housing market is going to see a tough year -- even in 2010.”

By the end of this historic property market crash prices will have been cut by about one-third from their peak in 2007, compared with median forecasts for about a 25 percent fall in a survey taken just over two months ago, according to the analysts surveyed.

Four said prices would fall 40 percent from their peak.

That follows the record dive in 2008, sparked by the global financial crisis, as a boom that saw average house prices triple over the prior 10 years unravelled as quickly as the record mortgage lending that drove it dried up.

The median forecast of a 30 percent fall would wipe about 60,000 pounds off the average property value, based on a peak average house price of just under 200,000 pounds struck in August 2007 using the Halifax index.

Since then, the Bank of England has slashed benchmark interest rates by an unprecedented 3 percentage points in just three meetings, taking them to 1.5 percent, the lowest since the central bank was founded in the late 1600s.

It is likely to cut rates again in February as the number of Britons filing for jobless benefits has risen above one million and did so at the fastest pace since the 1990-91 recession..

“The story of the housing market will be determined by the strength of the labour market,” added Sharratt.

“Although we may see some sort of stabilisation in the economy in the final quarter of this year, for many households in early 2010 it will still feel like a recession.”


But two-thirds of the forecasters who answered the question said that on the whole, mortgage lenders won’t likely be willing to fully pass on future BoE rate cuts.

“Lenders do not have sufficient margins at such low official rates to pass on cuts,” said Paul Samter, with the Council of Mortgage Lenders. “This problem gets worse the nearer Bank Rate is to zero, combined with difficulty in attracting savings at low rates and continuing problems in the money markets.”

Forecasts for mortgage approvals, loans agreed but not yet made and a key forward-looking indicator for the housing market, backed up expectations for a steady recovery.

The poll found monthly mortgage approvals would likely be at 35,000 in six months and 50,000 in a year, the same as the last poll. The latest Bank of England reading, at 27,000 in November, was the lowest in the 10-year series.

HBOS has estimated the house price to earnings ratio, a key affordability measure, is now at its lowest in 5-1/2 years -- around 4.4 in December. That compares with a peak of 5.84 in July 2007 but is still above the long-term average of 4.0, which is what economists in the poll said was sustainable.

The forecasts for house prices collected in the poll were based on a variety of surveys, mainly the Halifax and Nationwide indexes but some were also based on the Department for Communities and Local Government.