House prices seen overvalued

Houses are seen behind a residential street sign in London December 1, 2008.

LONDON (Reuters) - House prices will ascend gradually this year and next but the market looks increasingly overvalued against shaky fundamentals, according to the latest quarterly Reuters property poll of analysts.

The survey of 29 economists showed house prices rising 2.0 percent this year and 1.9 percent in 2011, a much flatter outlook than January's poll which saw growth of 1.6 percent this year quickening to 2.5 percent in 2011.

While a far cry from the double-digit growth of last decade's boom years, house prices have been creeping upwards since mid-2009 after bottoming out from a steep decline that coincided with the global financial crisis.

But 19 out of 25 respondents said house prices still looked very high against weak fundamentals, assigning a median rating of 7 out of 10, where 10 is extremely overvalued. That compares with a score of 6 in January's poll.

"The housing market continues to look overvalued -- all the more so given the recent rise in prices far in excess of income growth," said Peter Dixon from Commerzbank in London.

"We look for only a modest rise in prices from here over the course of 2010, which will help to ease valuation pressures somewhat."

Britain's largest mortgage lender Halifax said last Thursday there were signs an increase in the number of properties for sale was beginning to reduce the imbalance between thin supply and high demand, curbing house price growth.

This effect could explain why survey respondents scaled back their expectations for price growth in 2011.

"Survey evidence suggests the balance of power between buyers and sellers has shifted, with new instructions to sell now outpacing new buyer enquiries," said Andrew Brigden from Fathom Consulting.

"Our central expectation is that this trend will continue, and indeed intensify."

On Tuesday, the Royal Institution of Chartered Surveyors said many vendors also appear eager to put their properties on the market amid uncertainty about the political direction of the country ahead of a likely close-to-call May 6 general election.

The range of forecasts for house price growth this year remained very wide, ranging between a decline of 8.4 percent and growth of 8.8 percent.

WEAK FUNDAMENTALS

The global financial crisis has wiped some 20 percent off the value of British homes from peak-to-trough, according to median forecasts from the survey in which there was scant expectation for further falls.

While record low Bank of England interest rates and anaemic supply have supported the residential property market in recent months, the backbone of the economy remains weak and credit tight.

"We believe that the overall appreciable house prices rises that have been seen since early-2009 have been out of kilter with the overall economic fundamentals," said Howard Archer from IHS Global Insight.

He cited high unemployment and low earnings growth as key factors, as well as poor credit conditions.

Economists saw monthly mortgage approvals -- loans agreed but not yet made and a good forward indicator of housing activity -- at 60,000 in six months, slightly down from the the 65,000 seen in the corresponding forecast from January's poll.

The 12-month expectation of 70,000 was unchanged from the previous survey.

Still, British residential property firms have sounded upbeat about the market this year.

On Tuesday, Britain's biggest quoted residential landlord Grainger (GRI.L) said it was making the most of increased stability in the UK property market.

And last month the chief executive of the UK's largest housebuilder by market value, Persimmon (PSN.L), Mike Farley, told Reuters that the year had started well, with volumes and prices rising.