News: UK market set for price fall?

Wed, 07 Nov 07

There is a one-in-three chance of UK houses prices being lower in 2010 than they are now, according to Price Waterhouse Coopers...

In its latest analysis of the housing market, PwC said its research suggested prices were 10% "overvalued" against indicators such as average earnings. But it added that a general cooling of the market was still more likely than "an outright fall in prices".

Recent surveys have given off mixed signals about market conditions. Taking into account average earnings, interest rate fluctuations and supply constraints, PriceWaterhouseCooper said its research pointed to average house prices being 10% "above their equilibrium value".

It believes the chances of prices being lower in nominal - or cash - terms in 2010 than they are now is one-in-five. However, factoring in inflation into the equation, it said the likelihood of a "price fall" was closer to one-in-three. "This does represent a material downside risk for the economy more generally given the likely knock-on effects of lower house prices on consumer confidence and spending," PwC said in its latest UK Economic Outlook.

But it cautioned that the "most likely outcome" was for prices to continue to rise above the rate of inflation in the long-run but not as rapidly as in recent years. Several respected forecasters including the International Monetary Fund and Fitch Ratings have argued that the housing market has become way overstretched.

Reports from the Royal Institute of Chartered Surveyors (RICS), the Land Registry and the Department of Communities and Local Government have painted a picture of a market that is clearly starting to slow. But Nationwide said recently that prices actually rose in October at their fastest rate in the past four months and it added that prices were "unlikely" to fall unless interest rates and unemployment rose close to levels comparable with the early 1990s.

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