Economic analyst Capital Economics forecasts a 20 per cent fall in house prices over the next four years as external pressures continue to choke UK economic recovery.
Using figures from Nationwide, a 20 per cent fall would see the average house price fall from around £162,000 to £130,000, the lowest level since August 2003.
CE predicts that rising unemployment together with a weak economic outlook will see prices continue to decline until the end of 2015.
CE property economist Paul Diggle says: “We see falls of about 5 per cent a year for the next four years. You can already see that in the standoff between buyers and sellers over the past couple of years, with buyers unwill-ing to accept higher prices.
“We think there will be an increased squeeze in the labour market over the next few years and the UK is in the process of falling into a renewed recession. The pressures will build sufficiently to see a sharper movement downwards in house prices.”
Diggle says such a dramatic fall in such a short period of time will cause considerable pain for homeowners.
He says: “It will affect consumers’ confidence first and foremost and their willingness to spend in the wider economy. It will affect their ability to withdraw credit from their homes and their overall wealth. It will also have significant effects on the wider economy.”
However, the outlook is not so bleak for first-time buyers. Diggle says: “Falling house prices are not necessarily the depressing outcome you would think because it means a whole host of would-be buyers will benefit from lower prices but you have to acknowledge the short-term pain.”
In contrast to CE’s bearish outlook on the UK housing market, others are more bullish in their assessments of prices over the next few years.
Nationwide chief economist Matteo Carrozza says: “If you think about what is happening in the economy, it is quite challenging, but interest rates are extremely low and will continue to be low for a number of years.
“In addition, if you compare the UK economy with other economies, we have a shortage of housing, so this is supp-ortive of house prices.”
The Centre of Economic and Business Research predicts that low interest rates and shortage of houses will see house prices rise by 14 per cent by the end of 2015.
Halifax housing economist Martin Ellis says: “Prospects for house prices during 2012 will, to a large extent, depend on events in the eurozone and the repercussions of developments there for the UK economy. If the UK can avoid a prolonged recession, we expect broad stability in house prices.”
John Charcol senior technical manager Ray Boulger says: “My view at the moment is a bit less bearish than it was a few months ago. I suspect prices will not end up doing much in the next few months. If Greece does not default, and hence the banking crisis does not get any worse, then I expect prices to be broadly the same by the end of the year. All that could change in the long term if the eurozone crisis worsens.”