Prices to Fall Before They Pick Up

Capital Economics, a housing market analyst, has released its latest forecast for 2005 and beyond, and it does not make cheering reading in the short term for most homeowners.

Their analysis has highlighted areas which are most vulnerable to sharp house-price decline, and found that the areas where prices had risen most steeply are, in their opinion, in for the most dramatic falls.

These include the South West, the East Midlands, the North East and the North West where, unrelated to average earnings in each respective area, which is an unsustainable state of affairs and indicates an impending fall, the report says.

Predictions for 2005 are for falls of 8.9% for the South West, and a figure of around -3.5% in the North, but things are set to get worse in 2006, with percentage falls of up to 12.8% in the North West.

Prices for other parts of the UK are also set to fall, said the figures, although not so dramatically. Land prices are also due to take a hit, most dramatically of all this year, but are due to recover fully by 2007.

The forecast says: ?The ratio of prices to average earnings appears to have peaked, and although the early signs of correction are most visible in London and the South East, our analysis suggests that that it will ultimately be regions such as the North West, the South West and the North that see the largest peak-to-trough falls in average house prices.?

Only in London do surveyors feel that activity will pick up from current low levels without further falls in house prices, and initially, first time buyer affordability is expected to restrain activity in all regions.

However, the analysis does carry a caveat, known well to those in the business: ?The scale and duration of house price falls remains an area of considerable debate? over the next few months, it is possible that higher buyer interest could put a floor under prices as the stock of property for sale remains low,? Capital Economics warned which effectively allows for anything to happen.