Houses Price Correction in 2008?
House prices are likely to fall year on year in 2008 for the first time since the early 1990s, reports the FT in its survey of 52 economists.Most believe a long-awaited correction in UK property values is on its way and 10 economists believe prices will fall more than 10 per cent from their peak before the downturn is over. "UK house prices finally became unaffordable at the end of 2007," said Diana Choyleva at Lombard Street Research.
Julian Le Grand of the London School of Economics said prices could fall to five times average earnings, from the current multiple of nine, and John Van Reenen, also at the LSE, expected prices to fall 20 per cent before bouncing back.
However, as ever with economists, opinion is divided, and a significant minority said the housing market, as in 2005, would have a soft landing, supported by easing interest rates and historically low unemployment.
Nick Barr at the LSE called the slowdown a "point of inflexion rather than a downturn" that coupled with lower interest rates would help borrowers and buyers.
A few economists welcomed the prospect of a correction. Tim Leunig at the LSE said the scale of recent price inflation left few people vulnerable to negative equity, and added: "The broader economy would be helped, were house prices not to recover from any such fall: we need more affordability, not less."
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