Housing market to cool rapidly into 2008

By Ross Finley

LONDON (Reuters) - The housing market will cool substantially into 2008, with an almost one in three chance of an annual fall in prices at some time over the next 12 months, a Reuters poll shows.

The expected 2.2 percent rise for next year is half that found in a similar survey taken in April, in results that clearly show the latest spurt in a decade-long housing boom is fizzling out following five interest rate hikes.

Analysts say house price inflation will average 9.3 percent this year, compared with 7 percent in a poll taken in April.

All of the 18 economists who answered the question said that British housing was overvalued, with a median 15 percent divergence from fair value, up from 12.5 percent in April. The range stretched from just 5 percent to 30 percent.

The survey of 22 analysts at banks, investment firms and research organisations was published after mortgage lender Halifax said that house prices unexpectedly fell 0.6 percent on the month in September, the first fall since December.

Recent data from the Royal Institution of Chartered Surveyors also show that new buyer interest fell for the ninth straight month and analysts are increasingly convinced that prices are now out of reach for many Britons.

"Housing affordability for first time-buyers is less attractive today than at any time since the early 1990s," said Peter Dixon, UK economist at Commerzbank in London, referring to the period before the market last had a major correction.

"Without first-time buyers entering the market there will be less impetus to drive the market higher, and they are clearly being priced out."