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No clear economic view on UK property price recovery

One leading property economist is warning that it could take 25 years for house prices in the UK to recover. Another predicts a 30% rise between late 2009 and 2012.

Analysts Capital Economics is bearish about the extent of the property market downturn and pessimistic about a quick return to high values.

The economics consultancy said that house prices could fall 35% over the next three years and provided the market was stable, prices would not reach 2007 levels until 2036.

The basis for its analysis is the property market's overvaluation at the peak of the UK housing boom. The economists argue that even with above average house price growth, the squeeze on mortgage credit and the continued economic downturn will slow any recovery.

'This is not a forecast, as such, but an illustration of what could happen. It makes the point that unless you rely on another unsustainable boom the climb back to 2007 house prices could take a very long time,' said Ed Stansfield, property economist for Capital Economics.

However property prices may be booming again by 2010 as the sharp fall in house building threatens to see demand outstrip supply, according to The Centre for Economic and Business Research (CEBR).

According to its latest report a halt in house building amid the credit crunch could fuel a 30% rise in prices between late 2009 and 2012.

'When prices have fallen in the past, we have seen house building slow quite rapidly but take a lot longer to come back, which leads to demand outstripping supply. With the fundamentals of the housing market still relatively tight, the credit crunch might already have sown the seeds of the next house price boom,' said Richard Snook, an economist at CEBR and one of the authors of the report.

The CEBR also forecasts that prices will start to recover next year if the Bank of England cuts interest rates, as expected in 2009.