House prices face first annual fall since mid-90s

By Jonathan Cable

LONDON (Reuters) - House prices will fall in 2008 on an annual basis for the first time since the mid-1990s as a global credit crunch and fears of rising unemployment and possible recession take their toll, a Reuters poll shows.

There is a 78 percent chance house prices will fall on an annual basis at some point this year, according to the quarterly Reuters poll of 30 analysts at banks, investment firms and research institutes taken March 25-27.

This compares to 65 percent forecast in a January poll and just a 30 percent chance predicted in October.

Prices will fall by 0.8 percent in 2008 as a whole and 2.0 percent in 2009, medians in the poll showed, ending years of rocketing prices that were fuelled by cheap and easily available credit that is now increasingly harder to get.

Forecasts for 2008 ranged from a 10 percent fall to a 3 percent rise, highlighting market uncertainty, although that compares with an 8 percent fall and a 5 percent rise in the last poll and shows the outlook is deteriorating.

"Tightening credit conditions, weak purchasing power and a softening labour market will all prevent a resurgence in house price inflation," said Matthew Sharratt, an economist at Bank of America in London.

The housing market, a bedrock of consumer wealth that has tripled in value over the last decade, has been slowing rapidly in the face of a global credit crunch.

HBOS, Britain's biggest mortgage lender, and Alliance & Leicester are asking for larger deposits and raising the criteria to obtain credit.