The British housing market is set to crash over the coming years with prices falling by up to 20 per cent from their peak, according to research published this morning by economic consultancy Capital Economics.
The think-tank reckons the widely shared expectation of a gentle slowdown in the housing market "now looks like a best-case scenario". The central forecast of the Bank of England and the expectations of the Nationwide and the Halifax, Britain's two largest mortgage lenders, is for house price inflation to decelerate to zero over the coming years.
House prices, according to Capital Economics, are 28 per cent above their predicted level, compared to 24 per cent at the end of the late 1980s boom.
"We believe that houses are so over-valued that outright falls in prices are now required to bring them back into line with fundamentals," said Capital Economics' Ms Sabina Kalyan.
Because of the market's current momentum, Ms Kalyan does not expect to see prices falling until the end of 2003.
"But the price of this continuing boom is a correspondingly more severe correction, with average annual rates of inflation running at -5 per cent in 2004 and -10 per cent in 2005 on our central forecast," she said.
She said nominal house prices are likely to fall by up to 20 per cent from "peak to trough", wiping out the gains in housing wealth since the second quarter this year.
"This would be equivalent to a 10 per cent fall in nominal house prices from November 2002," she said.
AFP