What the next year holds in store for house prices

Opinions vary on the prospects for house prices over the next 12 months, ranging from no change to "a second leg" of the house price correction.

Property forecasts are always entertaining. It doesn't matter how many times a company or individual gets it wrong, they always come back for more.

With Nationwide just recently reporting an annual fall in house prices of 1.3% up to April 2011, several forecasters have capitalised on that story by grabbing a piece of the spotlight for themselves and their employers. I shall share their forecasts with you, and I shall raid my own large database of old forecasts to see what they guessed last time, just for the fun of it.

Please let me know what you think of their latest soothsayings in the comments box below.

No big change

Melanie Bien, director of mortgage broker Private Finance, wrote in the Telegraph last week about property prices for the rest of the year, and going into 2012:

“While a strong uplift in prices looks highly unlikely, first-time buyers waiting to get on the housing ladder will be disappointed to hear that so too does a significant plunge.”

Her main thesis is that low growth and low levels of buying, selling and moving will stop prices rising. As far as I can make out, she doesn't really summarise why prices can't fall a lot, so perhaps you should see what you make of it yourselves.

Melanie Bien's prediction for 2010 was a fall of 6.6%. Prices went up 0.1%.

No change or small fall

Nationwide's chief economist, Robert Gardner, has a similar prediction with two factors countering each other to restrain large moves in either direction.

In support of house prices, he highlighted continued low interest rates, and suggested a gradual improvement in the labour market would help to provide support for housing demand, while limiting the number of forced sales.

However, he also said: “Nevertheless, a strong rebound in the market remains unlikely as the recovery is still expected to remain modest by historic standards. In our view, the most likely outcome is that house prices will continue to move sideways or drift modestly lower through 2011.”

Gardner had more to say that was in a classic, Nationwide-style prediction: “There is still little evidence to suggest that price declines will accelerate in the months ahead. While the UK economy only managed a modest bounce back at the start of the year, after the weather-induced contraction in late 2010, the economic recovery is expected to gather momentum.”

Last autumn, Nationwide's Martin Gahbauer predicted “relatively modest declines” in 2011. So far he's on course with this loose forecast.

Prices to “trend down”

Chief UK and eurozone economist Howard Archer of information provider IHS Global Insight said “The renewed fall in house prices is consistent with our view that house prices will trend down gradually overall through the rest of 2011 and, very possibly, the early months of 2012.”

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He explained that tighter fiscal policy and possibly rising interest rates will be the cause. He added: “Although there are signs that housing market activity has edged off its lows recently, it is still at a very weak level that historically has been associated with falling house prices.”

In autumn last year, Howard Archer predicted a 10% fall throughout 2011. They're currently up a little this year-to-date. He predicted 3% to 5% falls in 2010. (Prices went up 0.1%.)

Prices to remain “deflated”

Nick Leeming, co-founder of property website Zoopla said: “The lowest end of the property market is in a state of rigor mortis because of the lack of affordable mortgages, and until this section of the market springs back into life prices will remain deflated all the way up the property chain.”

Nick Leeming predicted 2% to 3% increases for 2010. He was just 2% too high.

Housing market is “fragile”

Similarly, Samuel Tombs, UK economist at macroeconomic research consultancy Capital Economics, said: “The housing market remains in a fragile state. It’s hard to find any evidence to suggest that the overall economic recovery is back on track.”

He talks too about the low buying, selling and moving activity being the problem or an indicator of the problem. Paul Diggle, another economist at the same company, said he expected falls due to big public-sector cuts. He said the areas that take the greatest hit from budget cuts – Wales and the West Midlands – should “continue to lead the rest of the country into the second leg of the house price correction.”

Roger Bootle at Capital Economics forecast last summer a 10% fall this year. (They're currently up 2% year-to-date.) Ed Stansfield of the same firm forecast 5% down last year. (Prices went up 0.1%.)

5% fall in house prices

Standard & Poor's, the credit ratings agency for investors, has released a forecast that house prices will fall 5% this year, due to the austerity measures that the government has taken.

Late last year, S&P forecast a fall of 7% to 10% in 2011. (They're currently up 2% year-to-date.)

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