10 percent chance seen of 1990s housing crash

By William Kemble-Diaz and Sinead Cruise

LONDON (Reuters) - There is a "one-in-10 chance" of a 1990s-style housing market crash, the Royal Institution of Chartered Surveyors (RICS) said on Tuesday, after cutting back its expectations for house price inflation.

Simon Rubinsohn, chief economist of the RICS, which closely monitors national and regional property prices, said his base case was for flat house prices across the country in the next 12 to 15 months, down from an earlier forecast of 3 percent growth.

He also said there was a 20 percent chance of a 10 percent fall in London house prices over the next 12 months and said talk of a looming "crash" was legitimate and not irresponsible after RICS data last week showed the first drop in house prices in nearly 2 years.

But like other housing market experts he said homeowners were unlikely to see a repeat of the country's previous housing slump, when average prices fell by an inflation-adjusted 35 percent from their peak in 1989, according to data from property services firm CB Richard Ellis.

Peter Damesick, head of UK property research at CB Richard Ellis, said the chances of a housing market crash were still "pretty small" because there was no obvious trigger in the offing such as the economic downturn or sharply higher interest rates of the early 1990s.

Rubinsohn said the RICS was not reacting simply to mortgage lender Northern Rock's cashflow woes, which have been pushing up mortgage rates and could reduce the availability of credit, but had already been scaling back its expectations in the wake of previous interest rate rises.

Those interest rate rises now appeared to have run their course, economists said, leaving the Bank of England with enough room to cut them if housing market conditions worsened significantly next year.

"The risks in the near term are to the downside but further out, where there is scope for offsetting policy actions to take effect, we are more confident," said Michael Taylor, senior economist at Lombard Street Research, which was sticking to its view of negligible average house price growth in 2008.