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House prices will fall 15 per cent but no crash, says Jewson

Independent investment consultant Jewson Associates has predicted a 10-15 per cent fall in house prices over the next two years.

Head of strategy Tim Brown says it does not believe the UK will see a crash in the housing market nor a recession on the scale of that seen between 1990 and 1992.

Brown says: “To put this into perspective, even in house prices fell 20 per cent tomorrow, the average house would still have doubled in value since the end of 1999.”

Jewson Associates says that house prices were 5.8 times higher than average earnings in July 2007 – way above the long term average of 3.9 times, suggesting that house prices are 45 per cent overvalued.

Brown adds: “And even the less well publicised relationship between the current level of house prices and the long term trend suggests current prices are around 30 per cent above trend.”

“But in the last fifty years, actual house prices only fell for a brief period in the late 80’s and early 90’s. At that time, prices were around 35 per cent above trend – similar to today’s conditions. The big difference is that interest rates were then at historically high levels. Today’s interest rate levels are low by comparison. Rather than a sharp decline in prices, therefore, we think house price indicators could revert to more normal levels through a combination of time, lower mortgage rates and growth in earnings.”

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