House price forecasts for 2009 – how far can they fall?
A good amount of conflicting information has followed the recent worldwide economic crisis with regard to house prices, so here we have a look at what the industry sees for the year to come.
Will house prices continue to fall in 2009?
Undoubtedly they will; it bears remembering that the current trend of falling house prices did not begin this year, as the first signs of an impending crash were seen in many quarters in the latter part of 2007.
In the year that followed the market took blow after blow, and construction companies halted progress on new sites and put new plans on the back-burner as sales dried up. The industry estimate is that prices now are almost 20 percent lower than they were at the beginning of the year, and as an indication of things to come this is not a good sign.
As an indication of how difficult it is to accurately forecast the trends in this industry there were many who confidently predicted, at this point last year, that prices would level out in the summer. Now we have seen the true depths of the economic crisis estimates have been suitably revised, and the general consensus is that prices will continue to fall.
The disagreement comes when asked just how long the recession will continue as, like last year, there are some analysts who believe the market will find a level somewhere during 2009; alternatively there are those who see a continuing reduction in prices beyond the end of next year.
A spokesman for one major lender reckoned that a fall of 20 percent would be seen across 2008 and 2009, but with even the most conservative showing a fall of 15% over the last twelve months it is difficult to envisage that only five percent will be wiped off prices in the next year. Notably, industry commentators are reluctant to be specific, perhaps as a result of erroneous declarations made a year ago.
The most definite statement appears to be that prices will certainly continue to fall, particularly in the early months of 2009, and that nobody knows for how long this will continue.
What are the causes of the price crash?
It is particularly interesting to note the paradox that is currently occurring in the banking world in the UK: interest rates are tumbling at an unprecedented rate thus making borrowing considerably cheaper, yet banks are still reluctant to lend money despite the eased ability of borrowers to repay.
Some analysts are adamant that we have not seen the worst of the recession yet, and that consumers are still living in a form of suspended reality bubble that will be rudely burst in the next few months.
They cite an increase in unemployment, this a direct result of companies feeling the pinch and shedding staff, and point to an increase in repossessions to come as a knock on effect. This will lead to lenders selling off repossessed properties at vastly deflated auction prices, and a further slump in the market as a result of this.
The more pessimistic view is that prices will, by 2010, have reached a level some 32 percent lower than the heights they achieved at peak in 2007, and this represents a considerable loss in any industry.
The overwhelming speed at which lending was halted has had a very harsh effect on the situation, and the hope remains that the continued cutting of interest rates by the Bank of England will, somehow, spur the lenders into action and bring the dormant market back to life. This is not going to happen overnight, however, hence the more pessimistic views of a market taking a few years to recover may well be the most honest and accurate.
Nevertheless, one of the major building societies claims to be experiencing a rise in customer interest, although customer interest does not automatically translate into increased sales. What the market needs is a cooling off period, but how long this will take is clearly a matter of debate in housing market circles.
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