They are starting to recover but are only likely to see 1% growth this year followed by 2% growth in 2014, according to an analysis from PriceWaterhouseCoopers.
By 2015 they are likely to be around 7% above the peak of 2007 in cash terms but still around 15% lower in real terms after adjustments for inflation.
This means that they won’t return to pre 2007 levels until after 2020, says the prediction from the accountancy and professional services firm.
In cash terms, average UK house prices could rise above their previous 2007 peak before the end of 2014, but this could take until around 2021 in real inflation adjusted terms.
The report also points out that London house prices are leading the current recovery in the market, but the upturn is becoming more widely spread.
Recent government initiatives to support the mortgage market, such as the Help to Buy scheme, seem to be having a positive impact in the short term although longer term supply shortages remain a concern.
The predictions come against a background of the UK economy showing clear signs of recovery in the first half of 2013. We expect growth to pick up from around 1% in 2013 to around 2% in 2014,’ says PwC.
By 2020, the analysis suggests that rising earnings and a gradual easing of credit conditions, combined with housing supply shortages, could push average UK house prices back up to around 35% above their 2007 levels in cash terms.
However, this would still be around 3% below their 2007 peak in real terms once inflation has been taken into account. The 2007 real peak might not be regained until around 2021 in this central case, although there are large uncertainties surrounding any such long term projections.
Regional variations in house price trends continue to be significant. London, Eastern and Southern regions have been more stable with growth rates higher than the UK average, but Northern Ireland has seen much more volatility. Here house prices grew very rapidly between 1997 and 2007, but have since fallen back by nearly 60% in real terms.
In London, average real house prices also grew strongly between 1997 and 2007, but have since fallen by only around 9%, which is only around half the real rate of decline for the UK as a whole.
Helped by an influx of international money, London house prices are leading the current recovery in the market although it is now becoming more widespread across other parts of the country.
‘Over the next few years, we expect the recent gradual recovery in UK house prices to continue, although affordability will remain an issue for many first time buyers. While mortgage approvals are picking up gradually, housing completions remain subdued,’ said John Hawksworth, chief economist at PwC.
‘And although recently introduced government initiatives to support the mortgage market are likely to boost demand in the short term, in the longer term other measures will be needed to address more fundamental problems related to lack of housing supply,’ he pointed out.
‘We expect house prices to pick up at average rates of around 3% to 4% per annum in cash terms over the next four years, which is slightly higher on average than the consensus view. Based on our main scenario, average UK house prices might be back above their 2007 peak in cash terms as early as the end of 2014, but in real terms this might take until around 2021,’ he added.
