With growth slowing in 2016 next year prices could fall by 1% but the market will recover in 2018 and see growth of 2%, says the analysis from Countrywide.
It predicts that while growth will slow across all regions, London is likely to see price growth slow to 3.5% in 2016 before a fall of 1.25% in 2017 and a recovery to 2% in 2018.
The prime central London market is expected to be the hardest hit with prices forecast to fall by 6% in 2016, rising to 0% in 2017 and 4% in 2018 while the South and East of England is also expected to slow in 2016 followed by small price falls in 2017 before returning to positive price growth in 2018.
Prices in the South East are expected to ease to 3.5% in 2016 from 9.6% in 2015 and fall by 1% in 2017 and a similar outlook is forecast for house prices in the East and South West as prices adjust to weaker economic conditions and previous strong growth.
Weaker economic conditions are also expected to hit prices in the North, the Midlands and Wales. The North East is expected to see price growth fall to 0.5% in 2016 and a decline of 0.25% in 2017. Price growth in the North West, Yorkshire and Humberside, Wales and the Midlands is also expected to slow in 2016.
Next year is likely to see small falls too as uncertainty about life outside the European Union impacts investment and labour markets despite the support of a weaker currency. The report points out that the vote to leave the EU has unsettled the UK economy as uncertainty surrounding the arrangements for decoupling from the EU and the effect this will have on trade and future economic growth.
The firm expects a weaker economy and for this to affect house prices and transactions through consumer confidence, household incomes and the labour market. This is not the only factor affecting the path of house prices.
It also points out that higher stamp duty continues to take its toll on the top end markets and after several years of double digit price growth, expectations of future capital gain have weakened in many areas leading to reduced demand.
However the continuing lack of supply of property and very low borrowing rates will remain a supportive factor for house prices. The predicted price falls in 2017 will mean prices returning to levels similar to the first quarter of 2016.
And the report explains that there are higher than usual risks to these forecasts given the extraordinary nature of the challenges ahead. These are mainly to the downside, although the UK housing market always has the capacity to surprise to the upside and will be dominated by the UK’s negotiations of terms to leave the EU.
It adds that on orderly exit is in the interest of the remaining EU members and indeed global economies. That gives some room for an upside to these forecast numbers.
‘Forecasts in the current environment are trickier than ever as the vote to leave the EU has thrown up many risks. Our central view is that the economy will avoid a hard landing, which is good news for housing markets,’ said Fionnuala Earley, Countrywide’s chief economist.
‘However, the weaker prospects for confidence, household incomes and the labour market mean that we do expect some modest falls in house prices before they return to positive growth towards the end of 2017 and into 2018,’ she pointed out.
‘Not all of the corrections are due to the vote to leave the EU. Stamp duty and weaker house price growth expectations, particularly in London’s prime markets, have a part to play. There are supports to prices on the supply side from the continuing mismatch of supply. On the demand side, ultra-low interest rates and the significant discounts available to overseas buyers resulting from the fall in Sterling will help to support prices too,’ she added.
