House prices to fall then rise

Like the proverbial phoenix rising from the ashes, house prices will climb again in 2009 after a fall this year says a new report.

Prices are set to drop by 5.5% this year (on average by £11,000 to £188,000), according to the Centre for Economics and Business Research (CEBR).

However, the study then goes on to point out that house prices should bounce back the following year. The CEBR says three factors are driving the current price falls.

* The first is the credit crunch, leading to stricter mortgage approvals.

* Secondly, many homes are over-valued because prices have overtaken what buyers really can afford.

* The third factor is affordability. Households are struggling with tougher personal finances due to last year's interest rate rises, high inflation, tax increases and weak wage inflation.

Mercifully, the dip will be limited because of a shortage of housing, the possibility of interest rates being cut several times this year and higher immigration.

The CEBR believes the average house price will rise 3% next year and at a higher pace over the following three years.

Gloomy forecasts of a crash have been 'overplayed,' according to Jonathan Said from the CEBR.

Property analyst Hometrack states that prices have fallen four months in a row, with the latest drop at 0.3%. The steepest falls this month (0.4%) are in London and the south west.

Fewer homes are up for sale and the average time to find a buyer has gone up to 8.5 weeks - the longest stretch since the survey began in 2001.