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
|
Expert |
Who are they? |
Prediction |
|
Jones Lang LaSalle |
Global commercial real estate management business |
Fall 7% |
|
Savills |
Estate agency, consultants and surveyors |
Fall 6.6% |
|
Cluttons |
Chartered surveyors and property consultants |
Fall 1.5%. Best case scenario +2%. Worst case scenario -5% |
|
Ernst & Young ITEM Club |
UK economic forecasting group |
Will dip in 1st half of 2010, gradually picking up from 2011. |
|
National Association of Estate Agents (NAEA) |
UK professional body for estate agents |
Flat or slight drops in 1st half of 2010. Picking up and stabilising in 2nd half. |
|
Halifax |
UK mortgage Lender |
No change |
|
Nationwide |
UK mortgage Lender |
No change |
|
Royal Institution of Chartered Surveyors (RICS) |
Independent body which regulates property professionals/surveyors |
Rise 1% to 2% |
|
Consumer opinion* |
Consumers |
Rise 3% |
* 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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Comments
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I avoided interest only mortgages for the simple reason that I didn't want to get into negative equity. I am also not eligable for a buy-to-let mortgage because I have no collatoral: I was told that my parents need to have a family home that I can borrow against. Interest-only is the kind of irresponsible lending that banks should never have been doing! I know a number of people who lost their jobs last year, were unable to pay their mortages, couldn't find any tenants and were forced into bankruptcy. The figures I quoted were a repayment mortgage, spread over at least 35 years, on a property costing around £110k. I am sure you appreciate that a £110k flat or starter home is going to be pretty cramped and poorly constructed. And I'm not cheeky enough to even look at a more expensive property! My partner and I don't earn anywhere near £30k each: the average graduate salary was £21k and I don't think it's increased much. Most annoying, our inability to buy a house actually seemed to hold us back from being promoted: both our managers had an issue with it, and preferred to promote young men with less qualifications and experience, but middle-class parents who helped them out with a deposit [rolls eyes in desperation]. We also faced difficulty saving up for the deposit on a house, since we needed to pay off our considerable student debts (grants were abolished the year I went to university) and all the costs of renting somewhere to live in the interim. Finding a tenant? I've had bad experiences and I don't relish having to clean up after some arrogant moron again... Perhaps I'm being a little unreasonable, but I worked damn hard to go to university and get a professional job because I was promised a better life. I feel betrayed by our economy. Plus, a £110 - £125k house may technically have 2 or 3 tiny bedrooms, but there sure as hell isn't enough room for everyone to have their own space!
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BeckyMarg - I'm sorry you feel all landlords in your town are the same, but it doesn't match my experience. In Reading, Oxford and London, where I operate, the choice of property and the quality has improved immeasurably compared to, say, the 1980s. I've also just moved to rent a property in Thame and although a fair proportion of the property was average - 1980s decor, cheap furniture, useless layouts, tiny and depressing flats built in the 1990s - nowhere was damp and every house had double-glazing and central heating. Poor ventilation is an endemic problem in British housing, whether you rent or own, and mould and "stuffiness" are usually the result of user-behaviour, as people don't open windows enough to circulate and exchange the warm, moist air generated by modern lifestyles. On present mortgage figures, you could borrow £216K on a 5% interest (fixed for 5 years for security against interest rates rising) and the interest-only mortgage would be £900pcm. In most of the south-east that compares favourably with the cost of renting a flat for a couple. If you have two graduates in ther mid- to late-20s each earning, say, £30K a year, your net income should be about £1600 pcm each, or £3200 in total. £900 a month represents 28% of your takehome pay - a little high compared to the postwar average of 20-25% but not disastrous. Of course I appreciate you may earn less than this, and £216K may not be enough to buy in your area or an acceptable salary multiple for lenders, and the figures change if you only have one person earning full-time if you have children. I'm just using a not unrealistic example. As regards having lodgers in a family house with children, what, really, is the problem? Loads of people do it, especially in town with a college or university. My wife and I never had any problems. The lodgers were hardly ever there, or stayed in their rooms studying, only venturing down to cook their meals. There was no need to share the family rooms with them, and everyone largely stuck to their own spaces. It could even be a positive pleasure to have another adult around the house if you got on with them, and the largely tax-free rent was a real help with the mortgage. You just have to live in the right area, pick the right people for lodgers and accept a few minor inconveniences.
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I'm confused, Delta - what is the other side of the coin? Some people may have done well by buying houses before the boom, but for most of them that money is tied up in the asset of that house. Only a select few people were bright enough to downsize or emigrate at the height of the boom, and some of them are now in trouble for other reasons (currency exchange rates, unemployment in their new locality, etc.) In addition, I don't know what your monthly repayments are, but during the boom we were being quoted monthly repayments upwards of £900 on a 90% mortgage on a basic starter property. That doesn't leave you much to eat! I find it remarkable that having an asset classifies as "doing well" when you can't afford new clothes or getting the boiler fixed (happened to a friend of mine) So I'm inclined to agree with Richab!
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15 January 2010