House price recovery driven by shortage of homes

The Centre for Economic and Business Research (CEBR) is predicting that house prices will begin a rapid recovery at the end of next year, rising by 30% by 2012.

Research undertaken for CEBR by Oxford Economics indicates that a shortage of homes will be the main driver behind a return to property price inflation.

In its consumer and housing prospects report, CEBR forecasts that house prices will fall 15% from their peak, last autumn, through to mid-2009.

At the same time, housing completions will fall short of government targets and are expected to decline by 20% in 2009 and 10% in 2010, as Britain’s housebuilders mothball projects in response to a slowing market and a shortage of mortgage funds.

The authors of the report expect the Government’s target of 185,000 new homes per annum for England to be missed for several years, with completions falling to 141,000 in 2008, 134,000 in 2009 and 139,000 in 2010.

Historically, the housebuilding sector reacts quickly to a slump in the market but takes a longer period to recover and as the credit crisis begins to work itself, a shortfall in housing stock will once again put pressure on prices.

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