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House price predictions 2008

As the number of those getting new mortgages fell again in September, a new report has predicted that the housing market should see some small falls in inflation into 2008 and 2009, but no dramatic corrections.

The economy is set to slow in 2008, according to the report from Capital Economics, as past rate increases, a weaker global backdrop and tighter credit conditions take their toll on activity, although interest rate cuts are now on the cards, perhaps as soon as next month.

This slowdown is expected to be broadly comparable to that of 2004-2005 when house price inflation dropped sharply, but house prices did not fall, it says.

?We have cut our forecast for house price growth in 2008 from 0% to -3%,? it states. ?We also expect house prices to fall by a further 3% in 2009.?

In London, financial turmoil has weakened the outlook, but a stagnation of house prices in the capital seems most likely in the short term, they say. Elsewhere, housing affordability is worst in parts of northern England, the Midlands, Wales and the South West, which makes them more vulnerable to falls: ?These regions will be hit hardest by softer household and public spending. Thus, by and large, we expect them to suffer the largest house price falls,? say the authors.