Think tank predicts 12.2% fall in UK property prices this year

An economic think tank is predicting that residential property prices in the UK will fall 12.2% this year despite various house price indices that show a steady increase in recent months.

According to Oxford Economics the real estate market will not stabilise until 2011. It forecasts a further fall in prices of 4.6% in 2010 and an increase in 1.1% in 2011.

In a report prepared for the National Housing Federation, the organisation predicts that there will be a steady increase in property prices after that so that they will have increased by 20% by 2014.

These predictions fly in the face of reports in the last few days from two major lenders in the UK. Last week the Nationwide predicted showed a 1.3% rise in July and forecast that there was a reasonable chance that house prices could end the year higher than at the start. And this week the Halifax figures showed an increase of 1.1% in July, the second rise in three months.

The NHF said the research shows that some homeowners could be stuck in negative equity for at least another five years as the property market struggles to bounce back but it believes it is a realistic outlook.

'The research shows that while house prices are falling in the short term, they will inevitably increase in the long term because of a fundamental under-supply of housing,' said David Orr, chief executive of the Federation.

The Oxford Economic Research also goes against what real estate agents expect. A confidence survey by propertyfinder found that agents expect prices to rise by 0.65% during the third quarter of this year, compared with a predicted 1.3% fall last quarter. Transaction levels are also expected to continue rising throughout the next quarter, by 6.4%.

'This is the first time since we launched the confidence index that agents have reported an expected rise in prices and so it shows that the market is finally moving into recovery mode with prices picking up and transaction levels continuing on their upward spiral,' said Nicholas Leeming, a director at propertyfinder.

Agents also reported that sellers are in a stronger position, with nearly one in three agents (28.6%) reporting that we are currently in a sellers' market and nearly half (47.1%) reporting that the market has become more favourable for sellers over the last three months.

In addition, properties are now spending less time on the market, currently averaging 5.1 weeks, down from a peak of 7.2 weeks in the first quarter.