House prices are likely to end 2011 in line with, or marginally lower than, last year. That will do little to alleviate the extent to which housing is overvalued. Against this backdrop, and with the economic outlook characterised by weak growth and falling employment, house prices have further to fall. We expect prices to decline by 5% in both 2012 and 2013. While low interest rates make a longer, slower adjustment possible, if anything, we think that the threat of another major financial market shock and a return to recession mean that the risks to our forecasts are to the downside.
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