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Britain’s National Institute of Economic and Social Research (NIESR) believes that British housing prices will fall over the next five years, in real terms (adjusted for inflation), out to 2015.This equates to an 8% decline per year.
NIESR’s figures show that although average house prices are expected to rise from £194,235 last year to £213,091 in 2015, they would need reach £231,000 to keep pace with inflation. As a result, average households will be £28,000 out of pocket.
Simon Kirby, a NIESR research fellow, said: “While we have assumed the housing market remains stable, house prices could decline at a more rapid pace.”
Families have already been hit by falling house prices. They crashed 19.3 per cent during the recession, according to Nationwide and have yet to recover to pre-crisis levels despite a 10 per cent bounce. Mr Kirby said that weak bank lending would restrain house price growth.
NIESR’s housing outlook came as it warned that a double-dip recession is more likely following the coalition’s emergency Budget. The probability of a full year of negative economic growth has risen from 14 per cent to 19 per cent as a result of the extra £40bn of spending cuts and tax rises unveiled by the Chancellor last month, it said.
This is a particularly interesting view given that it incorporates the potential for high U.K. inflation. Basically, housing prices may appear relatively stable, but if inflation is rising rapidly, then real prices will decline. They’re warning of a stealth-devaluation, if you will.
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