Thousands of homeowners were plunged into negative equity this month as house prices slumped by £5,000.

The cost of an average home fell by 2.5 per cent during May, the biggest monthly decline since records began in 1991, figures from the Nationwide Building Society show. House prices have fallen by nearly £12,500 since the market turned in October.

Gráinne Gilmore, Economics Correspondent and Rebecca O’Connor, The Times – 30 May 08

This month’s slide in prices prompted economists to forecast that house prices would fall by more than 20 per cent in two years. This would plunge two million homeowners, or one in six mortgage borrowers, into negative equity, according to Morgan Stanley, the investment bank.

Howard Archer, of Global Insight, an economics consultancy, said: “The 2.5 per cent plunge in house prices is a real shock and will fuel concern that we are now headed for a sharp correction in house prices. Our latest forecast is for prices to fall by 7 per cent in 2008 and 9 per cent in 2009. However, it now looks more likely than not that house prices will fall by 10 per cent this year and 12 per cent in 2009.”

Capital Economics, another consultancy, says that its prediction of a 20 per cent fall in house prices is “firmly on track”. Nearly 370,000 borrowers will be in negative equity if prices fall by a total of 5 per cent this year and next, Morgan Stanley said. Prices have already slipped by 4.7 per cent since the beginning of the year – full article

See also: http://www.youtube.com/watch?v=W-jH_xcaZng