UK Housing Market Problems Mount

RICS has forecast that the number of house sales could fall by 40% this year. This would amount to the largest fall in the housing market since records began and could cut consumer spending by 8%. The previous largest fall was in 1989, when they fell 26%. Sales to date in 2008 are already down by 32%.

The slowdown has already affected removals firms who have seen a slump in business, with the number of moves down by 55% in the first three months of this year, and down by 68% in the past six weeks. If sales do fall 40% this year, that represents 700,000 fewer residential and commercial property sales than in 2007.

RICS also predicted that house prices would fall by 5%.

As many people are already experiencing, household bills are rising sharply. This was confirmed yesterday, by Mervyn King, the Governor of the Bank of England who warned families to brace themselves for a further squeeze on their household finances, as energy bills and food prices continue to rise.

With inflation set to increase to 3.7% - almost double the official target - the likelihood of further interest rates cuts in the short to medium term look unlikely. Indeed, we could see the return of stagflation - rising interest rates to counter inflationary pressures, while experiencing falling economic growth.

Mervin King warned home owners to expect further price falls adding that is was impossible to predict the size of these falls. He warned that a sharp downturn in the economy could not be ruled out.

According to the latest RICS survey published today, a record number of surveyors are reporting house price falls. 82% of estate agents/surveyors have seen a fall in house prices since the start of 2008, the worst rating since records began in 1978.

The figures show that the housing slump is even more widespread than during the last house price crash in the early 90's with house prices falling across the whole country. According to Simon Rubinson, chief economist at RICs, "even during the house price crash of the early 90's, some parts of the country didn't take as much o a beating."

On a brighter note, the house price falls that are reported are relatively modest, with ost surveyors reporting a fall of less than 2%.

The 82% of surveyors reporting a fall is up on the April figure of 66%. It was the 9th month in a row that the number of surveyors reporting price falls has risen.

The worst hit areas of the country are East Anglia, the North and North-West where all surveyors reported falls.

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