Three-year decline could take 50% off UK house prices

Analysts who specialise in futures trading are forecasting a minimum three-year decline in UK residential property prices that will take 50% off values in real terms.

According to experts who predict long-term investment potential, the process will begin with a 10% fall in house prices during 2008, followed by a 10.5% drop in 2009.

Prices could then bottom out in 2011 having lost 50% (on an inflation adjusted real terms basis) and return to current values over a six-year period.

The calculations take into account an average retail price inflation rate of 4%.

The forecasts are based on the Halifax house price index, which is published monthly and in May reported a 2.4% drop in residential property prices.

According to the lender, house prices are already falling faster than at any time since the property crash of the early 1990s.

The British housing market is seen as overvalued from both within and without the UK and there is ample evidence to suggest that the credit crisis has yet to run its course, as banks and building societies continue to tighten lending criteria, withdraw mortgage products and raise interest rates.

It can therefore be argued that the UK mortgage market can no longer support the country’s overvalued property market.

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