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UK residential property prices set to fall 7% in 2010 before picking up again in 2012

Although average house price growth for 2009 could reach 5% by the end of this year, the rate of growth is already slowing, says the end of year UK Residential Market Forecast from Jones Lang LaSalle.

But it concludes that the medium term outlook is good. Although 2010 and 2011 are expected to be difficult years for the real estate market after that prices are predicted to rise strongly at 6% per year.

It says that as well as unemployment a number of factors will cause house prices to fall in 2010 including the rise in VAT in January, the general election, the diminishing impact of the quantitative easing programme and further government fiscal tightening will all weaken the demand for housing in the next 12 to 18 months while also forcing more homes into the marketplace.

‘Whilst there is evidence to suggest the UK economy is in recovery mode there remain question marks about the depth and sustainability as well as how the public finances can be repaired, quite possibly under a new government,’ said James Thomas, head of residential development and investment at Jones Lang LaSalle.

‘The recent pick up in house prices is based on fragile economic fundamentals such as a weak pound, which has driven overseas buyer demand, and a boost from the stock market recovery, both of which are unlikely to be as supportive during 2010,’ he explained.

‘It is very probable the present recovery will stall next year with prices falling by 7% as the rate in the increase of new buyers to the market eases, while the low number of properties on the market bottoms out and starts to rise again,’ added Thomas.

Analysts say that the overhang from 2010 will make 2011 a difficult year.

‘But thereafter we can expect the potential for strong house price growth of 6% per annum as an improving economy forces increased housing demand to come face to face with restricted supply,’ concluded Thomas.