POLL - House prices to tumble as boom turns to bust

By Jonathan Cable Reuters - Thursday, August 7 01:09 pm

LONDON (Reuters) - House prices are likely to fall 7 percent this year and will probably tumble 20 percent from their highs before they start to recover, a Reuters poll found, in more evidence that a decade-long boom has turned to bust.

The poll of 27 analysts at banks, investment firms and research institutions found forecasts for 2008 as a whole ranged from a 20 percent fall to a 2.2 percent rise, with a fall of 8 percent predicted for next year.

The poll found economists predicting the market would fall 20 percent from peak to trough, with a few saying the correction would be as much as 35 percent.

A Reuters survey in May predicted just a 5 percent fall in house prices this year, while a poll in October forecast a 2.2 percent rise, highlighting the rapidly deteriorating outlook for the once-booming property market.

But the figures may already be understating reality. Data released by the Halifax mortgage lender earlier on Thursday showed house prices fell for the sixth month in a row in July and by a sharp 1.7 percent.

Some are now concerned that the economy is heading for a bust similar to the one that is in full gear in the United States, where prices are already falling more than 15 percent on one measure, the worst on record.

The Reuters poll found a 50 percent chance of that happening, up sharply from 30 percent in the May survey.

"We think that in most respects the is undergoing a U.S.-style housing correction," said David Page, economist at Investec, who expects house prices will continue falling until the end of next year before finding a bottom.

But he added: "We think that this is likely to be followed up by years of much flatter growth than we have seen for the bulk of the preceding decade."

Policymakers are hamstrung between slowing growth and record-high inflation and Reuters polls show the Bank of England won't have room to cut interest rates well into next year. It left them on hold at 5.0 percent on Thursday, as expected.

BUYER STRUGGLE

The housing market, which has seen the average price of a home triple over the last decade, has been slowing rapidly in the face of a global credit crunch despite three interest rate cuts by the Bank of England.

First-time buyers have been struggling to raise a sufficient deposit while lenders have tightened their criteria for loans.

Last week HBOS Plc, the biggest mortgage lender said first-half profits had halved and predicted that house prices would fall by 15-20 percent over 2008 and 2009.

Housebuilders have been shedding jobs over recent months with Bovis Homes, Barratt Developments and Redrow among those cutting thousands of positions to cope with the deepening depression in the housing market.

But not everyone is struggling. Last month property developer Marcus Cooper sold London's second biggest house -- dwarfed only by Buckingham Palace -- for 50 million pounds, more than twice the price paid for it last year.

Analysts in the poll predicted mortgage approvals will be at 42,000 in six months, before recovering somewhat to 60,000 in 12 months. This is only slightly better than a record low of 36,000 recorded in June but a long way down from a 2007 average of around 104,000.

Approvals -- loans agreed but not yet made -- are a good early indicator of where house prices are heading.

"The lack of mortgage funding increases the danger of an over-correction in prices beyond what is required to bring buyer affordability in line," said Miles Shipside at Rightmove.

Many lenders have been tightening credit conditions for new borrowers even though base rates have dropped. Millions of homeowners are set to be hit by higher mortgage rates when cheaper fixed-rate deals from to years ago expire this year.

A majority of forecasters predicted it would take a year or more before the premium on mortgages over base rates began to decline.

The forecasts for house price inflation are based on a variety of surveys, including the Halifax, Nationwide and DCLG.

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