LONDON (Reuters) - House prices have further to crumble but will bottom out inside a year as economists grow more optimistic about a faster upturn with interest rates remaining at record lows, a Reuters poll showed.
Average house prices are seen falling 8 percent this year, after already sinking 16 percent in 2008, but are likely to remain flat in 2010, the poll of 35 analysts at banks, investment firms and consultancies found.
Prices are seen rising just over 2 percent in 2011.
However, as gloomy as the forecasts are, they are somewhat rosier than predictions in a March poll for a 14 percent fall this year and a 4 percent fall in 2010. Since then, mortgage lenders have reported a few unexpected monthly price rises.
But not all forecasters were optimistic about next year, with Britain’s largest building society, Nationwide, one of the most pessimistic on the outlook for next year.
Twenty-three of 33 said house prices would stabilise within the year, with 11 of those saying they would trough within six months. Only 2 said it would be more than two years.
“We will get a few more month-on-month negatives but it is pretty flat from here,” said Alan Clarke at BNP Paribas.
Houses in the UK have long been the bedrock of consumer wealth but prices nose-dived last year, knocked by the global financial crisis. A bubble that saw average values triple over the prior 10 years burst as the key driver — mortgage lending — dried up.
By the end of the downturn, average UK house prices are expected to have sunk 25 percent from their peak in 2007 and still have another 7.5 percent to fall from now. The March poll saw prices falling by a third from their peak.
The survey will prove glum reading for anyone who bought a property during the boom years when UK banks were lending money at record low rates with few restrictions on how much one could borrow, sometimes as much as 125 percent of a home’s value.
Banks have now tightened lending criteria considerably for new borrowers and mortgage approvals — loans agreed but not yet made and a good early indicator of where house prices are headed — rose slightly to 43,000 in April.
The poll found monthly mortgage approvals at around 55,000 in six months and about 65,000 in a year, much higher than the 36,000 and 53,000 predicted respectively in March’s poll, but still a far cry from the average of 104,000 seen in 2007.
“Housing market activity is still very low by past norms and at a level consistent with falling house prices,” said Howard Archer at IHS Global Insight, who thinks prices have a further 10 percent to fall from here.
A lack of new sellers had boosted property asking prices this year but there remains a big gap between sellers’ aspirations and actual selling prices.
Property website Rightmove said on Monday asking prices in most of the UK fell 0.4 percent in June, after rising 2.4 percent in May, but the annual rate of decline moderated to an eight-month low.
The poll found economists still think properties are slightly overvalued, giving a median rating of 6, where 10 was extremely overvalued and one extremely undervalued compared to fundamentals. The median rating in March’s poll was 7.
The house price to earnings ratio — a key affordability measure — fell to 4.36 in May, a level not seen since January 2003 according to the Halifax, but the Reuters poll showed it falling further to 4.0.
The BoE has slashed a whopping 450 basis points from interest rates since October, putting them at just 0.5 percent, and the bank has begun quantitative easing, effectively printing money, in an effort to encourage lending and jump-start the economy.
However, the only direction for interest rates to go now is up and economists predict they will begin to climb in the second half of next year.
This will provide additional headwind for any housing market recovery as banks factor the rise into lending rates and increase borrowing costs.
Britain’s economy entered recession at the end of last year for the first time since the early 1990s and is seen shrinking 3.9 percent this year, with a return to growth pencilled in for end-2010.