Latest housing forecast from RICS

Submitted by on Mon, 19.05.08

RICS expects UK house prices to slip by around 5 percent this year but transactions could fall 40 percent if there is no easing up in the credit crunch according to its latest Housing Forecast out today.

In December the RICS was looking for the housing market to gain some traction during the latter part of the year, but the on going re-pricing of risk by lenders makes such an outcome improbable. RICS believes that prices will continue to edge lower during the remainder of 2008. 

However, the fall in prices will be relatively modest. Homeowners are less vulnerable to repossessions than during the early 1990's housing market crash.  There is little evidence in RICS analysis that distress sales, which characterised the 1990's, are picking up. 100 percent mortgages have not been as common during this cycle, indeed RICS estimates that the average loan-to-value ratio between 2005 and 2007 was in the region of 85 percent compared with 90 percent in the period between 1985 and 1989. 

Equally, it is important to note that recent lending has been dominated by repayment mortgages.  In the three years to 2007, 71 percent of first time buyers mortgages were made on capital and interest repayment basis compared to only 17 percent in the three years to 1989. Nevertheless, RICS still estimates that repossessions will rise to 43,000 throughout the year as mortgage resets bite home.

While the price decline built into the forecast is modest, a collapse in transactions is far more worrying. RICS forecasts that transactions could drop 40 percent.  A lack of liquidity has really started to hit property sales with the recent RICS Housing Market Survey showing that sales are down 31.7 percent on levels 12 months ago. A halving in sales volumes could lower consumer spending by more than 8% compared with 2007.

RICS chief economist, Simon Rubinsohn said:

"The second half of 2008 will prove a difficult period for the housing market. Money looks set to remain tight and many will continue to find that access to the market is restricted by cautious lenders. Demand will remain pent up with many watching the high street banks for any sign of a softening in lending criteria.

"It is very worrying that property transactions could fall by as much as 40 percent this year. This could have important ramifications for the wider economy not only hitting the property industry directly but also impacting on a broad range of related sectors whether that is the high street purveyors of home furnishings and white goods or financial intermediaries involved in providing mortgage advice."