House prices predictions for 2008 – a region-by-region breakdown

The housing market finally seems to have turned. Analysts have been predicting a slowdown since interest rates first went up in August 2006, yet the boom continued in many areas. Annual house price growth has been running in double digits for much of the year but all of that is now changing.

Prices fell by 0.8 per cent last month according to Nationwide – the largest monthly fall since 1995 – and the annual rate of growth has slowed from 9.7 per cent in October to 6.9 per cent. There are signs that the market is also cooling in London, which has been one of the strongest regions this year. Property values in parts of London have surged more than 30 per cent since January according to Knight Frank, an estate agency, but prices in some areas are now falling as the credit crunch and five quarter-point interest rate rises take their toll.

All the indicators now point to a slowing market – estate agents are seeing fewer enquiries from prospective buyers, mortgage lending for purchases is slowing and more surveyors are reporting price falls, than price rises.

Analysts are not expecting the market to crash but homeowners are being warned not to expect the value of their property to rise significantly over the next few years. The most bullish forecast is for 3 per cent growth next year, but many commentators expect prices to remain flat – Nationwide building society is forecasting zero growth as is the Royal Institution of Chartered Surveyors (Rics) and Capital Economics, a consultancy, thinks prices will fall by an average of 3 per cent. However, the national average will mask huge variations in the strength of the market is different parts of the country. We look at what the experts think will happen at a regional level.

London
House prices in the capital have been one of the main drivers for growth this year and most analysts expect it to remain one of the strongest areas. Estate agency Savills thinks prices will rise by an average of 5 per cent in 2008. While higher than the national average, the London market will be significantly weaker in 2008 than 2007.

The credit crunch is expected to have a significant impact on London house prices. A record £8.8 billion was paid in City bonuses last year and an estimated £5.5 billion of that was invested in property. However, the Centre for Economics and Business Research has predicted that bonuses will fall by 16 per cent to £7.4billion this year. It also warns that 6,500 jobs in the City could be lost. Savills believes a knock-on affect from this will be a sharp drop in the amount of money City workers plough into the property market next year. As demand softens, price growth will slow.

Nationwide is forecasting 1 per cent growth in London house prices next year. However, Fionnuala Earley, chief economist at the building society added that there are significant factors, which will help underpin the market in the capital. She said: “The supportive factors for London prices are severe supply shortages, the positive economic impact of Olympic spending, and a likely continuation of demand for prime central London properties from overseas buyers, particularly those from oil-producing and emerging market economies.”

South East
The property market in many parts of the South East is driven by the same factors which influence house prices in London, and, as such, it boasts some of the country’s most expensive homes.

At the top end, demand comes from wealthy homeowners who work in London, but want to live outside of the capital. While prices at the bottom end of the market have been pushed higher than the national average by people who cannot afford to live in London and seek more for their money in the surrounding areas. As a result, the commuter belt is spreading further and further out.

As with the capital, analysts expect the South East to be one of the most resilient regions during the market slowdown. Savills is forecasting annual growth of 4.5 per cent, while Hometrack, a property website, thinks prices will rise by an average of 1.5 per cent in the South East next year. Hometrack’s national forecast is for just 1 per cent growth in 2008.

Scotland
Nationwide believes Scotland will be the strongest performing region next year and it is forecasting price rises of 4 per cent in 2008. Savills also thinks prices in Scotland will rise by 4 per cent next year and Hometrack is forecasting price rises of 3 per cent.

The reason for this is that affordability is least stretched north of the border so the impact of this year’s interest rate rises should be less marked. Ms Earley said: “Scotland has not participated as strongly in past house price boom cycles, and this probably makes it somewhat less vulnerable to weaker conditions in the UK market as a whole.”

The average house price in Scotland is £141,158, compared with the national average of £198,898, according to Halifax. There are areas of Scotland, where house prices are much higher than the average, notable parts of Edinburgh where the values of some properties are not dissimilar to prices in the South East.

Northern Ireland
Opinion seems divided as to the prospects for the housing market in Northern Ireland. Prices there have almost doubled in the last two years, and having been well below the national average for years, the current average is £221,004, according to Halifax.

Hometrack thinks the market in Northern Ireland will continue to be strong in 2008 – it is forecasting price growth of 3 per cent. However, Nationwide is expecting it to be the weakest part of the country. It is warning that prices will fall by an average of 5 per cent.

Ms Earley said: “Northern Ireland has become the least affordable region for first time buyers. This is due mostly to the phenomenal house price growth that the Province has seen over the past couple of years. At the end of September, prices were up by more than 40 per cent year-on-year, while earnings growth remained in the low single digits. At this stage there has been some overshoot of house prices, and we expect some falls next year.”

Demand has all but dried up according to Rics’ latest survey. Aiden Conway at Patrick Andrews Chartered Surveyors in Londonderry reported that demand in the lower price bands has virtually disappeared. And Bronagh Boyd at Digney Boyd estate agency in Newry, County Down, said: “There is no demand at present and we are advising clients to let their properties for the next six months if possible. Even if we reduce the prices there is no demand, so we are trying to keep prices reasonable.”

South West
Savills is forecasting price rise of around 3 per cent in the south west, but Nationwide thinks prices in this region will fall by 1 per cent.

The South West has been popular with second homeowners over the last few years and many locals feel they have been priced out of the market. However, demand from would-be second homeowners is expected to subside as a result of the financial crisis and higher interest rates.

Some estate agents are already experiencing a slowdown. Robin Thomas at Strutt & Parker, said: “The October market was quiet with viewings down. Vendors need to adjust prices to achieve sales.”

West Midlands
The West Midlands has been one of the weaker areas this year, with prices having risen by 4.7 per cent in the 12-months to the end of September, according to Halifax. The market is expected to remain soft next year, with Hometrack forecasting rises of 1 per cent and Nationwide expecting prices to be flat – some estate agents are already seeing the market weaken further. John Stevenson at John German estate agents in Burton-on-Trent, Staffordshire, said: “The market is getting flatter and flatter.”

However, as with all regions, some areas will do better than others and in order to get the 0 per cent growth that Nationwide is forecasting, prices will rise in some parts and fall in others.

Prices are already falling in some parts of the West Midlands – an oversupply of new build flats in the centre of Birmingham means that some owners are being forced to sell for far less than they paid a few years ago and this is likely to continue. At the other end of the spectrum, prices in Stratford Upon Avon and Leamington Spa have been rising very strongly this year, they were up 27 per cent and 20 per cent respectively in the year to September. Growth will probably be slower in 2008, but prices will more than likely continue rising.

East Midlands
Nationwide is forecasting zero growth in house prices in East Midlands as well, which means prices in some areas will fall while others see small increases.

Most at risk of price reductions are new build flats. Like in Birmingham, there have been a huge number of one and two-bedroom apartment built in places such as Nottingham. Many of these have been bought by landlords who are struggling to find tenants due to a glut of supply. As a result, they are being forced to sell and some are already facing significant losses.

In other parts of the region, estate agents are reporting a slow market. Mark Newton at Newton & Fallowell in Grantham said: “It has gone very quiet. New applicants and viewing are at their lowest level all year and the viewers that are about are offering at least 10 per cent below asking price. We’ve got a tough time ahead.”

East Anglia
The market in East Anglia could be more buoyant than that in the midlands, with Savills forecasting price rises of 3 per cent next year. Some parts of the region benefit from demand from London commuters, which should help underpin prices, but as you get further away from the capital things are likely to be quieter. Hometrack and Nationwide thinks weakness in these areas will pull the annual rate of growth down to 0 per cent next year.

North
Homeowners are warned to expect price falls of up to 2 per cent next year. Both Hometrack and Nationwide expect prices in Yorkshire & Humberside and the north east to fall in 2008. Savills also expects the market to be weak although it thinks slight rises of about 0.5 per cent could be achieved – this will still be lower than inflation, so in real terms prices will be lower.

Paul Airey at Paul Airey Chartered Surveyors in Sunderland, Tyne & Wear, said that market there has frozen and the only vendors achieving sales are those who are prepared to reduce their asking price. However, in Harrogate the market is much stronger, thanks to demand from buyers looking to move into the area.

Tim Robinson at Knight Frank in Harrogate, said: “Sales continue to be strong and we are seeing plenty of good new stock coming to the market.”

North West
Average house prices are also set to fall in the North West next year, with Nationwide forecasting falls of 2 per cent. New build flats in some areas of Manchester and Liverpool could fall by more, while the prices of properties at the upper end of the market in parts of Cheshire and the Lake District should prove more resilient.

Generally, supply shortages tend to be less of a problem in the north so if demand weakens it will have more of an impact – in areas where there is a shortage of property up for sale, prices can remain largely unaffected even if the number of buyer enquiries fall.

Wales
Having risen very strongly in 2006 and the first half of 2007, house price growth in Wales has already started to slow in many areas. Savills is forecasting a slight increase of 1 per cent next year, but Nationwide thinks values will slip back slightly.

Estate agents said that many buyers seem to be waiting to see if interest rates fall next yeast. Kelvin Francis at Kelvin Francis & Co in Cardiff, said: “Plenty of viewings are taking place but most buyers are holding back before making offers to see what happens to interest rates. If the Bank of England cuts rates, that will reassure many. There is a wish to buy, but at the moment buyers expect reductions and vendors will not give them.”

Written by Clare Francis

Image courtesy of Aunt Belly

Comments

[John Austin]

The housing market has operated solely for the benefit of mortgage lenders, property speculators, estate agents and lawyers.To suggest that prices should continue to rise at all is madness. Prices should fall heavily, the IMF has indicated that we are over valued to the tune of 40% and they should fall by that amount.The young people, first time buyers will then be able to purchase a home without selling their souls to the banks.

[russell]

House prices will fall by more than people think: factor in a falling pound and thus worsening inflation from high imports, inevitably higher mortgage interest rates and more stringent lending, new graduates being saddled with increasinly larger debts, rising unemployment from a faltering economy, and unprofitable bloated buy-to-let sector and you'd have to be a psychotically optimistic estate agent to think that house prices will not fall substantially - by 10 to 20% in real terms nationwide over the next two years

[Chris]

Who are going to be the losers if the market falls 10 - 15%.

Not
the landlords still receiving rent
the rich who have plenty of equity
the the people waiting to get on the ladder

Its the first timers who came into market over the last 12 - 18 months. They may find themselves in negative equity just as they are about to come out of their discounted fixed rates.

Good luck to them as there will be plenty of new first timers and landlords waiting in the wings to pick up the cheap deals.

[Robinson]

Chris you are quite right. I've just renewed my mortgage at 90% LTV, after buying at 95% LTV 2 years ago. I'm pretty glad I chose a 2 year deal back then rather than a 3 year, because if house prices fall 10% over the next year, I would have found myself needing 100% or more LTV and thus would more than likely have ended up on my current lenders standard variable, which is very high indeed. This time around I've gone for a flexible mortgage, over full term (no early redemption charges), tracking BOE base.

If you add in things like inflation (not the CPI, real inflation, including things like council tax) and the fact I'm not likely to get a good pay raise in the next 12 months (mostly due to the weakness of the dollar), I would have really been feeling the squeeze in 12 months time.

I feel sorry for those who have to remortgage next year that's for sure.

[Bob Blenkinsop]

Would you seriously expect someone from Savills to predict a fall in house prices? Even in wealthy Surrey prices for detached family homes have already fallen.

Property does not currently have any serious potential for capital growth, therefore speculators cease to buy property as an investment, demand falls and so prices fall until they reach a level where they become an attractive investment for professionals and homeowners alike.

The 40% of house prices that the IMF cannot explain is probably due to the fact that over the last ten years mortgage brokers and lenders have increasingly been encouraging people to lie about their income. Ask 20 of your respectable, middle-class friends how many have stretched the truth on their mortgage applications and my bet is that 15 or more will own up.

[Phil]

I agree with the sentiments of Russel and Chris. I was disgusted to see the jovial reaction to this situation by the panel on question time on BBC 1 last night. They had the luxury of being able to gloat that although there was now a correction taking place they were still going to be winners. Well they might not, lets see how far this crashh goes. The most disgusting response was that of Hazel Blears who nodded encouragingly to comments about how the housing market was inflated and needed a correction. Given her position this was an absolute disgrace.

[tom]

I am first time buyer.The processing is going on for my first home.I live in Hampshire.I dont know whom to believe.I get contradicting reports . some saying the property prices are not going to fall but will be stagnant. but others sayiing they are definitely going to fall. can I turn to any one for advice.

[Diddly Do]

At long last all those commentators who had long ago been warning about the unsustainability of continued house price rises are again having the guts to come out and repeat the warnings. This time I think they will be proved right, but this market has now gone too far upwards to have a soft landing, despite the consensus. Just like price moves upwards which seem to take on a life of their own, so price drops will also take on a life of their own. As first time buyers (who sustain the market) sit on their deposits watching mesmerised as house prices fall, (when BTL investors, speculators and repossessions hit the market), so it will be more and more difficult for these youngsters to take the risk of further falls and buy. That could make for a very dangerous and unpredictable housing market. At about this time (1 year or so) Gordo's promise to release land and build more new houses will have finally come to fruition. (He is already bribing local authorities to do this.)
Just like when he unloaded the Nations' gold deposits, this will be exactly the worst time immaginable for rescuing house prices. There is deep trouble ahead I fear.

[bricksnmortar]

Houses may go down but they always go up again. If the first time buyers don't buy, then they rent - and help the buy-to -let market. There are lots of investors out there who will buy the cheap flats when interest rates are 4 per cent. So the first time buyers will have to time it right so that they don't lose out to the investors. High rents will mean that they have less to save for their deposits.

[gilbo]

another legacy the Bliar and mc broon disaster remember 1997 when the average house price was £80000 and people could afford to buy a house.

things can only get worse

[AG]

Why are commenters here so confused? Intermediaries, professionals and commentators are all but irrelevant. Prices move in response to demand and supply, two things that WE control. If we want to buy at current prices so much that there is more than one serious buyer for each property... then prices rise. Whether you are a failed first buyer or a bitter and twisted would-be pseudo-economist, understand how a market works. P.S. there is nothing out there which threatens serious increases in unemployment or reductions in real wages, so forced sales look like a margin factor still. However if we all feel cautious then prices will park or fall somewhat in response until lower prices, higher incomes and lower interest rates combine to get us buying. Most commentators here should wake-up, grow-up and get some education.

[Malcolm Williamson]

Predictions of house price movements are regular features in year end newspapers. Why are we never told the previous track records of those invited to give their opinions in these articles?

With this in mind I have just saved a copy of this article on my PC. When The Times publishes 2009 predictions in a year's time I'll post on this comments section a comparison between the estimates in the above article with the actual rises/falls during 2008.

[Presh]

quote,'Savills is forecasting price rise of around 3 per cent in the south west, but Nationwide thinks prices in this region will fall by 1 per cent.'

I do not know who is advising Savills. In Cornwall, the prices are so ridiculously high, even with my above average salary I cannot afford a reasonably sized property. Face it, the market is over priced and people planning to buy now are wasting their money. The market will correct itself, and there is no doubt about it. I hope there is a crash, not for the reason that people will suffer losses, but it will make people realise that economy which is based on even higher levels of debt has to hit a wall at some stage, the market crashing now will protect people, any further rise in valuations will cause repercussions of gigantic scale in a few years time, if the market does not correct it self now.

[William Black]

This really is a sad state of affairs. I purchased a property 18 months ago after graduating with the help of my parents who could barely afford to help me. I am saddled with a large student loan, was forced to take a job not requiring my degree. It is people like me who are now forced with the prospect of negative equity, possibly going bankrupt. I find this really unfair. I am of the generation that was two young to vote for Labour and now it is my generation that are forced to deal with the problems that they have created. So when you are wishing house prices to fall 40% spare a thought for people like me.

[Adrian]

Chris, don't be too alarmed by the doom mongers who are currently having a field day because the housing market is slowing. The property market does fluctuate and experienced homeowners and investors take a long term view. If you purchased 18 months ago, it's likely that you will have initially benefited from a reasonable increase in value, but its not a one way street. In a worst case scenario, if there is a big correction, you may need to wait for your property value to rise again, which it will. As with your employment comments, I believe you are experiencing the realities of life as opposed to something the government has created.

[Matt Myers]

NuLabour's debt fuelled dystopia!

WhoooPEEEEE

We can all get rich for doing nothing, watching property porn, buying and selling houses to eachother..FOREVER!!!

Honestly! How can the British be soooo DUMB

[Amelia Bedales]

William Black: If your parents couldn't afford to help you, why did they lend you the money? An economy (or family finances) built on debt is/are in serious trouble. I'm afraid you are about to be sacrificed for the greater good.

[Sean Budge]

Rising house prices have nothing to do with the government in power. Here in Australia we have the same phenomenon of massively overvalued properties that have occurred during the last 5 to 7 years and we had a conservative government in power during that time. Fact is interest rates are low and borrowing capacity is high and that equals rising house prices here, there and many other places around the world. Changing governments will do nought to assisting the situation. Its not goverments but people like YOU and ME that make the market. WE are the cause. William Black, nobody forced you to buy a property that was overvalued and now may fall in value, you chose to yourself. Take responsibility.

[Scott]

Estate agents transform into idiots at the end of a property bubble, they carry on believing the rubbish pouring out of their mouths, much the same as politicians at the end of their tenure. The UK housing market is well and truly screwed for the next five to six years.

[David S]

This is typical of Savills talking up the whole affair. They need the business so they will give slightly inflated(joke) and optimistic views of the market. I mean falls of 2% in the North; more like 5%.

[john.blythe]

London house prices may not fall in relation to reduced bonuses. Partly, I believe, because overseas buyers will fill the gap. It's a good investment market, particularly offsetting stormy stock market and bond markets.

[H Mason]

Wouldn't it be better for readers to have the opportunity to comment on an up to date article? rather than one from Dec 3rd 2007.

[P Johal]

these so called 'experts' dont half come up with some rubbish? house prices still going up in some areas??? unlikely!! this is just people trying to install some consumer confidence. we all know whats really going to happen, but by how much?

[David]

I am a property developer, so have an interest. It must be remembered that the vast majority of people that buy houses buy them to live in and, yes, they like a good investment, which, over the long term, their house will be.
And, of course, the old saying has never been more true... Always buy when the "experts" say sell etc. Never done me any harm.

[Frank Upton]

It would be useful to remind us what predictions the experts made this time last year and how accurate they turned out to be. A feature of any efficient market is that it is impossible to predict.

[Adrian]

My recent comment should have been addressed to William Black, not Chris as published. Could you please amend if possible.
Thanks

[Duncan]

Tom and others when wondering who to believe you can only look at the facts since opinions are normally self serving. An example after Marconi dropped around 30% certain press recommended a buy. Within a year or 2 the shares were virtually worthless, £3000 of shares would have bought you a round in your local.

These are the facts I can think of:
- the pound is weakening this may increase inflation.
+ the government seem desperate to not let hse prices crash.
- Houses are at historically high levels.
- The credit crisis is real and is starting to impact the UK.
- People have a heard mentality.
- house prices in Japan dropped for around 17 consecutive years in recent times.
+ There are currently not enough houses and Britain has continued immigration.

[Fredi]

Some comments are really disturbing and indicate a lack of sympathy and compassion. People like David rightly or wrongly decided to enter the market and were forced to pay high prices for property because the market had moved so significantly. Every time there was a warning of possible to decline the property market rose again leaving cautious investors behind. Do you people believe that overextending is something that people actually want to do? When faced with a situation that the 1 bedroom flat you had you eye on has suddenly gone from £200k to £325k as happened in and around Wandsworth/Battersea, its not a case of getting onto the property lader to make a profit, but just so that you wont be left behind! This bubble if it bursts will have significant ramifications across all sectors of the economy and will hurt many people. Its sickening the degree of anticipation that some people have, openly hoping that someone's demise wil be their gain.

[David]

I think many of the doom-mongers here are going too far. Remember, the largest ever single year fall in the UK average house price was only 8% (in 1992). There is a distinct chance that prices in some areas will fall this year by 5-10%, but unless unemployment increases dramatically, or interest rates skyrocket, the prospect of forced sellers flooding the market and driving prices down by 30% is unlikely. Much more likely is that prices will fall slightly or stagnate, volumes will be much lower (thereby supporting prices) and as long as the UK doesn't tip into recession then the market will recover in 2009/10.

[RF]

Hi AG, If you lifted your head from the economics textbook that you were pretending to understand, you would realise that we are not talking about a rational market, so your supply and demand curves do not tell the whole story. We have been living in a speculative bubble that has both artificially driven up demand, and suppressed the supply - because building more houses takes time. With no more "greater fools" entering the market, the speculative capital dries up, the demand falls, and eventually, the supply must increase as one whole sector of the market disappears. I'm not sure why I am responding to you, perhaps it was your rather pompous self-regard, particularly when your few sentences were riddled with such illogical drivel.

[david barker]

There are much wider issues linked to the housing market. The economy is based on HPi generating government revenue and fuelling the consumer boom. Now as the credit crunch arrives and the city goes into reverse house price inflation will disappear and the economy will take a nose-dive. Not a great time to invest in property as tenants fail to pay the rent.

[Ian Harper]

To William Black I would say that you have my sympathy- not that it will do you much good! If you are looking for redress and help, please do not look far. You are indeed partly responsible for not considering and researching your actions, but the main culprits are not the politicians. After all, we voted in the same gang who brought us the iraq war. WE knew how bad they were. And your parents are probably house owners who made money from it, and encouraged you down that route. They share the greatest responsibility, they made money from houses- it is to them that you should insist help you. Lastly, you should consider that you are much more fortunate than your equivalent in Iraq. You see the dangers of asking for liberation- you may get it but you may well not like it.

[bricksnmortar]

Historically people used to spend most of their money on rents/mortgages and food. Now we all expect cash for holidays and entertainment and all the latest clothes and mobiles, tvs etc . Perhaps we all need some economies to get us recycling.
The scandal of the housing market is not what it costs but the fact that for the last 10 years all new build should have been zero carbon rated.
If prices remain static for 10 years that is the same as a substantial fall - without all the ghoulish speculation. After all cars and white goods are much cheaper than they were 10 years ago. Years ago I paid a mortgage at 17% and had no spare money - I couldn't afford a washing machine or a dishwasher and a fridge set me back a lot!

[Seo Web Guide]

According to the prediction,i am not surpriesd if condition will be like that in 2008 or 2009.everyone want to take profit by this and u can say that become the business to earn the mony.according-- offshore company formation the condition can be improve.