Decline in construction activity could increase house prices

Posted under General by Michael

The decline in house building in the UK is likely to increase the house prices which were going down due to the financial crunch. According to a report published this week, undersupply of housing would lead to inflation in house prices by 2010.

The Centre for Economic and Business Research (CEBR) predicts that falling output from the builders would cause escalation of 30 per cent in prices between 2009 and 2012. While making this prediction, CEBR is presuming that mortgage market would get normalised by the second half of 2009. The CEBR report mentions that housing market has badly suffered due to declining confidence of the UK buyers, which led to a fall of 20 per cent in completions. The fall would cause shortage of housing subsequently contributing to recovery of prices.

Contrary to the CEBR report, the consumer and housing prospect report warns of fall of 8 per cent in the housing prices during current year and further 4 per cent slump next year.  CEBR is not expecting any rise in interest rates and employment as witnessed in early 1990s, but it apprehends that negative house price growth would double up home repossessions and lead to rise in mortgage interest rates.