Economists have issued a warning that the UK’s return to a second official recession could cause a abrupt fall in house prices. The country’s fresh downturn is expected to dampen consumer confidence which is already very low, further increasing the chances of a housing market slump.
Howard Archer, chief economist as IHS Global insight said “It is not good news for the housing market, given it’s already struggling. In the current environment it’s quite a large step for people to commit to buying a house.”
The possible drop in house prices is likely to be more significant than those recently seen. Headlines prices are expected to fall as well causing alarm to owners who gauge their wealth by the value of their home. Capital Economics is predicting a 5% drop in nominal prices in 2012 alone.
If consumer confidence falls too much there could be the danger of a self-fulfilling loop, causing markets to suffer even more as potential house buyers delay their purchases.
Paul Diggle who is a property analyst at the company said: “Each of the previous recessions in the UK since 1955 were accompanied by at least some decline in real house prices.”
“Because in the past inflation has been high, often house prices could fall in real terms but continue rising in nominal terms. But this time it’s unlikely to happen,” he also said. “Our underlying view remains that housing remains overvalued and due further falls.”