Property prices may be booming again by 2010 as the sharp fall in housebuilding threatens to see demand outstrip supply, according to a report from The Centre for Economic and Business Research (CEBR).
Press Release – The Centre for Economic and Business Research – 7 August 2008
It said a halt in housebuilding amid the credit crunch could fuel a 30% rise in prices between late 2009 and 2012. Its quarterly consumer and housing prospects report estimates that house completions will fall by a fifth this year and by 10% in 2009 as builders hit by the property market slowdown put the brakes on construction.
Figures revealed that activity in the construction industry fell to its lowest level for at least 11 years last month. CIPS Construction Purchasing Managers’ Index, which measures the industry’s performance, showed the lowest reading since the survey began in April 1997.
The CEBR expects house prices to fall by 8% this year and 4% next, but recover sharply amid a shortfall in supply.
Richard Snook, an economist at CEBR and one of the report’s authors, said: “When prices have fallen in the past we have seen house building slow quite rapidly but take a lot longer to come back, which leads to demand outstripping supply. With the fundamentals of the housing market still relatively tight, the credit crunch might already have sown the seeds of the next house price boom.”
CEBR also forecasts that prices will start to recover next year if the Bank of England cuts interest rates, as expected in 2009. Inflation pressures are seen easing as the economy slows, which may allow the Bank’s policymakers more room to loosen monetary policy, in turn set to lead to reignite property market.
The number of house building completions totalled 175,000 in England last year, but the CEBR forecasts a fall to 134,000 next year – far below the Government’s target for 185,000 a year. CEBR predicts that the average UK house price will fall from £196,000 in 2007 to £174,000 in 2009, before recovering to £226,000 in 2012.