House prices may fall by nearly half
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LONDON (Reuters) – High-flying house prices could nearly halve over the next few years, a City report has predicted.
David Pannell, an analyst at investment bank Durlacher, predicted house prices will fall 30 percent from their peak, with falls “sharper but shorter than in the 1980s” and added that there was a risk prices may fall as much as 45 percent.
“Our pessimism is based on international and historic experience — for example, the UK housing market has never experienced a soft landing,” Pannell wrote in a report titled “Bubble trouble”.
“Our analysis suggests a correction will take place even if interest and unemployment rates remain at their current levels,” Pannell said, attacking an argument often used to explain why a sharp fall in prices is not likely.
He said the crash will be supply-driven as homeowners try to sell at the top of the market.
House prices are a closely-watched economic indicator. Many have borrowed against the value of their properties, which has helped fuel a consumer spending boom.
Analysts are concerned that rapid house price inflation, which according to the latest measure published by mortgage lender Halifax is still climbing by 16 percent, has not cooled quickly enough from rates of near 30 percent in 2002.
The Bank of England, while insisting it is not targeting the housing market, has also spelled out concerns of late that house price inflation had not slowed as quickly as it would have liked, which raises the risk in months ahead of a crash.
The BoE raised its benchmark short-term rate by a quarter point for the second time in three months earlier in February, to 4.0 percent.
Durlacher is not the only City firm to predict a sharp correction in housing.
Analysts at Capital Economics, an independent research company, are predicting house prices will fall 30 percent from a peak reached this year.
A recent Reuters poll of economists found there was a one in five chance of a crash in house prices.
Mortgage lenders and estate agents, who have profited from rapid mortgage lending and refinancings and brisk business, are predicting a cooling in house price inflation.
A separate report from housing finance company Paragon said on Monday that landlords remain optimistic about the market this year.
Durlacher, on the other hand, predicted that those buying property to rent in 2003 would receive a one percent yield for, before the cost of maintenance.
“Positive returns rely on house price inflation to remain at current levels, which is unlikely,” the report said.
The Durlacher report said a tightening in lending rules by mortgage lenders, falling yields for buy-to-let, new regulation of mortage by the Financial Services Authority and rising interest rates will contribute to a fall in prices.
fantastic news. I sold my UK property several years ago and have regretted it ever since. Have been waiting for a nice price retreat.
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