House prices have further to fall

LONDON (Reuters) - House prices are set to fall by a quarter in total but could find a floor next spring, unlike in Spain, which is set for a longer housing correction, debt rating agency Standard & Poor's (S&P) said on Wednesday.

S&P said the average cost of a house would revert to about 4.4 times average annual earnings -- near back to where it was in 2000 -- if prices fell by 25 percent overall.

"Such a drop is reasonable to allow market fundamentals such as affordability to return to their long-term averages," S&P said in a report.

S&P said such a drop implied another 17 percent fall for house prices, with a trough occurring in April or May 2009, given the market's current rate of decline.

The market has sunk by almost 10 percent since August 2007.

Spain was also likely to see 25 percent peak-to-trough drop in house prices but a cocktail of higher interest rates, excess housing supply, and a darker economic climate meant it would take longer to get there, S&P said.

Ireland was probably closest to bottoming, in about six months' time, even though recent data suggested a housing slump that began at the start of 2007 was still gathering pace, it said.

Other European housing markets, notably the French, were also showing signs of easing and were set for a period of stabilisation or modest declines, S&P said.

However, levels of household indebtedness varied considerably across European economies, it said.