House price falls will come – but no crash

by John Fitzsimons on 09 October 2009  |  2 comments
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One ratings agency has this week warned of a further 20% fall in house prices – realistic, or worst case scenario?

If you are anything like me and keep your eye out for any news regarding the housing market, you will no doubt have noticed the latest grave warnings of a further house price crash yet to come, this time from Fitch Ratings.

In a report this week, Fitch warned that the current recovery in the housing market is little more than a false dawn, with house prices still to fall 20%, highlighting that the house price to income ratio is significantly higher than the long-term average.

It's easy to see reason to be cautious about the prospects for house prices - we still have to see the impact of rising unemployment, while minimal wage inflation and lenders' tough mortgage criteria are hardly making things easy.

And my own view is that a certain amount of price falls are likely. The current revival has been helped significantly by a massive shortage of properties, as prospective sellers don't believe they'll get a decent price for their home.

Once they feel the market has reached the bottom, there's a chance they will all put those properties on the market again, and the resultant flood will see prices fall back again.

With all that said, a further 20% fall seems far too pessimistic. Yes, lenders have been keeping things tight for a while, but there are signs that they are loosening up a little, particularly in launching mortgage products to help first-time buyers make that first step.

And it's not as if demand for property has suddenly gone away, just because of the credit crunch. As I wrote last week, the National Association of Estate Agents are moaning that some cities have 30% of adults with no desire to own a home. But that means 70% still do, an exceptionally healthy figure.

We are not out of the woods yet, and there will likely be a few blips along the way, but I just cannot see Fitch's grave warnings being borne out in reality.