House prices set to fall 7% - and rise 3%

What will happen to house prices in 2010? Jane Baker takes a look at expert predictions for the New Year.

No one could say that 2009 was a year of stong growth for house prices. But despite a deep and long-lasting recession, house price growth over the last 12 months has been much better than expected.  

Surprisingly, Nationwide's latest data shows prices rose 5.9% in 2009. While, according to the Halifax House Price Index, prices are 1.1% higher than they were 12 months ago, and 9.4% higher than the low point last April.

At least the major house price surveys agree on a market upturn in 2009, but what will happen in 2010? Let's take a look at what the leading experts have to say (with the bearish predictions first and the bullish last):

House price predictions for 2010

* According to the Building Society Association (BSA) Property Tracker Consumer Survey

Jones Lang LaSalle

Jones Lang LaSalle, a commercial real estate firm, predicts a pessimistic fall of 7% in 2010.

Key reasons why

It says the rally in house prices is likely to be temporary, with an expected peak in unemployment and weak mortgage lending. The company believes there are already signs the recent surge in growth is beginning to tail off. Furthermore, the removal of the stamp duty holiday is likely to have a negative impact on house prices across the board.

Savills

Savills, an upmarket estate agent, predicts prices will fall by 6.6% this year.

Key reasons why

Savills bearishly forecast that the property market will be adversely affected by the lack of mortgage products, gradually increasing supply of properties for sale and unemployment which together will force house prices down in 2010. The estate agency also expects a slow 2011, before a more sustained recovery takes place.  

Cluttons

Cluttons, another estate agent, predicts prices will fall by 1.5% in 2010.

Key reasons why

Cluttons forecasts the recent recovery will be short-lived. Stocks levels are expected to increase gradually as low interest rates enable homeowners to pay down debt and reconsider moving to new properties. Higher prices are likely to tempt reluctant landlords - who were forced into renting properties out during 2008 - into selling this year. The increase in supply could put downward pressure on prices.

Furthermore, problems persist for buyers who are reliant on borrowing to finance purchases with continued restrictions on mortgage loan-to-values. The rapid recovery in demand seen in the second half of 2009 is not expected to last into 2010 as a result of tough lending criteria, higher taxes and rising unemployment. 

Ernst & Young ITEM Club

The Ernst & Young ITEM Club, an economic forecasting company, predicts a dip in the first half of 2010.

Key reasons why

Hetal Mehta, Senior Economic Advisor at ITEM says the recent surge in house prices is a 'false dawn', supported by cash buyers and the shortage in property. Again, prices are expected to fall due to a dearth in available mortgage funds and tight lending criteria.

ITEM also highlight the difficulties facing first-time buyers. Without sufficient first-timers to purchase smaller properties, the market is clogging up. Existing owners are unable to trade-up which normally boosts prices. Rising joblessness and weak earnings growth have also played their part in reducing affordability. Prices aren't expected to return to the 2007 peaks for another five years.

National Association of Estate Agents (NAEA)

Predicts prices will be flat with slight drops in certain parts of the market.

Key reasons why

Peter Bolton King, Chief Executive of NAEA says recent price rises have been driven by demand outstripping supply in some parts of the market. Supply will remain stable in the run up to the general election. However, if more properties come onto the market - which may happen particularly if Home Information Packs are scrapped - prices are forecast to flatten, and in some cases, fall.

The NAEA also believe lending will continue to have an impact on house prices together with the end of the stamp duty holiday. Meanwhile activity in the market is expected to slow before the general election.

Halifax

Predicts prices will be flat in 2010.

Key reasons why

The mortgage lender isn't convinced the upward trend in 2009 will be repeated in 2010. Although lower rate mortgages and recent improvements in the labour market have fuelled prices in the short-term, the lender is unable to see a sustained recovery this year unless the economy strengthens, and the supply of properties for sale increases significantly.

Nationwide

Predicts house prices will be unchanged this year.

Key reasons why

Nationwide Chief Economist, Martin Gahbauer, believes the upward trend in house prices could falter if the pool of cash-rich buyers, which has supported activity in the market, dries up. Other factors, including the threat of rising unemployment and mortgage credit conditions, continue to risk a recovery.

Overall, the lender anticipates the recent price rises will lose momentum. But, at the same time, sees no obvious reason why a renewed drop in prices should occur.

Royal Institution of Chartered Surveyors (RICS)

Predicts prices will rise between 1% and 2% in 2010.

Key reasons why

Simon Rubinsohn, Chief Economist at RICS forecasts the shortage in supply will continue with stocks on surveyor's books remaining at historical lows. This could fuel further house price gains in the early part of the year.

The imbalance between supply and demand is expected to narrow, resulting in a rise in the number of property transactions as stock gradually increases. Transactions are forecast to step up from a monthly average of 55,000 or 60,000 to 70,000.

On the downside, first time buyers will face continued difficulty in finding mortgage finance unless assisted by parents. While cautious lending, a flat labour market and uncertainty in the economy will result in low house price growth.

Consumer opinion

Predicts prices will rise 3% in 2010.

Key reasons why

Confidence is rising among bullish consumers following a stabilisation of house prices during the latter part of 2009. However, rising unemployment is expected to temper stronger growth in 2010, while the ability of borrowers to raise a sufficient deposit is also seen as significant barrier.

What can we conclude?

With forecasts ranging from a fall of 7% to a rise of 3%, there's definitely no unanimous verdict. You weren't really expecting one, were you? But one thing is clear: prices may have increased in 2009, but that doesn't necessarily mean the trend will continue in 2010.

False dawn or new dawn - who knows? We can only wait and see... In the meantime, we invite you to give your own predictions, using the comments box below. And if you want specific advice on whether you should buy or sell this year, why not have a wander over to Q and A, to get advice from other lovemoney.com readers?

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