Housing market falls seen extending into 2010

By Ikuko Kao

LONDON (Reuters) - House prices will fall about 11 percent this year and the market will take up to two years to stabilise despite the lowest base interest rates in the Bank of England's 300-year history, a Reuters poll showed.

Average house prices are seen falling 10.8 percent this year after diving 16 percent in 2008 and were set to fall a further 3 percent in 2010, the poll of 37 analysts at UK banks, investment firms and consultancies taken January 12-14 showed.

Rapidly rising unemployment and a shortage of mortgage credit to new buyers is seen driving future declines in prices.

"Unemployment is going to soar in the course of this year and it's going to increase into the first quarter or even into the second quarter of 2010," said Matthew Sharratt, economist with Bank of America. "The housing market is going to see a tough year -- even in 2010."

By the end of this historic property market crash prices will have been cut by about one-third from their peak in 2007, compared with median forecasts for about a 25 percent fall in a survey taken just over two months ago, according to the analysts surveyed.

Four said prices would fall 40 percent from their peak.

That follows the record dive in 2008, sparked by the global financial crisis, as a boom that saw average house prices triple over the prior 10 years unravelled as quickly as the record mortgage lending that drove it dried up.

The median forecast of a 30 percent fall would wipe about 60,000 pounds off the average property value, based on a peak average house price of just under 200,000 pounds struck in August 2007 using the Halifax index.