House prices tipped to slip in coming year

A shortage of homes coming on the market should mitigate the downward pressure on house prices but they are still expected to finish 2011 two per cent lower.

The Royal Institution of Chartered Surveyors says property values are likely to continue falling during the coming months but a lack of supply should help to stabilise the market at some point during the first half of next year.

Prices could then begin edging up again during the latter part of the year, to leave property values close to where they started the year by the end of 2011.

The group said a key risk to its forecast was that public spending cuts would increase unemployment more than it expected, and this could depress interest from potential buyers.

But it said even if this happened, a shortage of properties coming on to the market was likely to prevent prices falling by more than five per cent.

Its chief economist, Simon Rubinsohn, said: "The lack of supply in the market is likely to prevent significant house price declines in 2011.

"The narrowing gap between supply and demand will see the gentle downward trend in prices currently taking place at least partly reversed as the year wears on." The group expects the number of homes changing hands to remain broadly flat during the year at around 900,000, well down on the peak of nearly 1.7 million sales in 2007, as the lack of mortgage finance keeps transaction levels down.

Mr Rubinsohn said: "Transactions levels will remain flat as mortgage lending remains subdued for another year with many first-time buyers struggling to meet their aspirations of home ownership."

But on a brighter note, the group expects repossessions to fall back slightly. Around 33,000 people will lose their homes during 2011, down from around 36,000 this year, as a combination of low interest rates, Government support schemes and lender forbearance helps people to stay in their properties.

The institution's forecast is considerably more optimistic than some predictions.

Capital Economics expects house prices to end next year around 10 per cent lower than they started it, followed by a further 10 per cent fall in 2012.

Howard Archer, chief UK and European economist at IHS Global Insight, is predicting house prices will lose around seven per cent of their value during the year, while others expect them to be broadly unchanged.