House prices seen to fall 5 percent in 2008

By Jonathan Cable

LONDON (Reuters) - House prices are likely to fall 5 percent this year, and many analysts predict they could tumble twice as much, as soaring consumer inflation restricts the scope for further interest rate cuts.

A Reuters poll of 30 economists, analysts and fund managers showed they expect property prices to slide further after recording their first year-on-year falls in more than a decade.

Forecasts for 2008 house prices on a full-year basis ranged from a 10 percent fall to a 2.9 percent rise, with a median prediction of a 5.0 percent drop, according to the poll which was taken May 8-14.

Nearly a third of the respondents -- nine of the 30 -- predicted a 10 percent drop. The median forecast compares with that of a 0.8 percent fall in a Reuters survey in March, highlighting the deteriorating outlook.

The government has a similar view. Briefing notes for housing minister Caroline Flint, seen as she left a Downing Street meeting on Tuesday, said house prices could fall as much as 5 to 10 percent this year and that the government does not know how bad it will get.

Economists also forecast an average five percent drop next year, according to the poll.

The housing market, a bedrock of consumer wealth which has tripled in value over the last decade, has been slowing rapidly in the face of a global credit crunch and despite cuts in official interest rates.

"The fundamentals are so weak that it would require a prolonged period of base rate cuts to re-stoke house price inflation," said Andrew Goodwin at Experian.