The house price correction has begun; larger falls to come in 2009 (Q2 2008)

Recent housing data suggest that although our forecast of a 5% fall in house prices this year is broadly on track, the risk of a weaker outcome has risen. We have also reduced our forecasts for economic growth both this year and next. The Bank of England’s Special Liquidity Scheme may ease mortgage funding concerns a little, but newly risk-averse lenders will not reverse much of the recent tightening in lending criteria. As a result, we have cut our forecasts for house prices. We expect them to fall 8% this year and 10% next. • We expect GDP growth of just 1% next year, down from 1.7% in the previous Analyst. Unlike the consensus, we expect the economy to be weaker in 2009 than in 2008, which, in turn, is part of the reason we expect a protracted correction in house prices.