House prices expected to fall

The Royal Institution of Chartered Surveyors (RICS) says that in June, 4% more of its members expected prices to fall during the coming months than those who thought they would rise (see the Free House Price Valuation guide).

The pessimism, which contrasts with the previous month when surveyors were still predicting further price rises, comes as the supply of homes for sale continues to increase.

A balance of 27% more surveyors reported a rise in new instructions during June, the highest level since May 2007.

At the same time, the number of potential buyers registering with chartered surveyor estate agents fell for only the second time since the latter part of 2008 as consumers fretted about the state of the economy.

The easing in the mismatch between supply and demand, which was one of the key factors supporting the housing market recovery in 2009, already led to a fall in the proportion of surveyors reporting price rises.

A balance of just 10% of surveyors said the cost of property continued to increase during June, less than half the 22% who reported price rises in May.

Going negative

The group said surveyors were still reporting house price rises in most parts of the country, but the increase in the supply of homes for sale was pushing many of the regional balances towards negative territory, with the exception of London and Scotland.

More surveyors are already reporting price falls than those who are reporting rises in Wales, Yorkshire and Humberside, the West Midlands and Northern Ireland.

RICS spokesman Jeremy Leaf says: "A shortage of stock has been one factor holding back transaction activity in the housing market, but the abolition of home information packs is helping to belatedly address this issue.

"However, with supply of property now beginning to outstrip demand, there is a risk of some modest slippage in prices during the second half of the year."

The RICS survey is the latest in a raft of housing market data pointing to price falls, with Halifax last week reporting that house prices fell for the third consecutive month in June.

But the rise in the number of properties on the market is expected to boost activity in the coming months, with a balance of 19% of surveyors expecting sales levels to increase going forward.

No imminent return to peak

Meanwhile, research from PricewaterhouseCoopers suggests house prices may still be below their 2007 level in real terms in 2015.

The group says house prices may not increase back up to their previous peak in real terms until around 2020.

John Hawksworth, head of macroeconomics at PwC, says: "Although the average UK house price overvaluation of around 25% in mid-2007 is now down to around 5% to 10%, despite the market rally since March 2009, our analysis suggests that house prices remain vulnerable to setbacks.

"The possibility of a renewed fall in house prices over the next few years, particularly in real terms, cannot be ruled out as mortgage interest rates start to rise again.

"While it can be argued in theory that house price changes have little effect on overall UK wealth, our econometric analysis suggests that an unanticipated future fall in house prices could have a significant impact in dampening the speed of the recovery in consumer spending in the medium term."

Further reading/Key links

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