Savills Revises Forecast for U.K. Residential Property Markets

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A drop in U.K. housing prices will likely erode much of the "unsustainable price rise of the last 15 months," says Savills, the property company.

"This will not be a repeat of 2008 as some doomsters have suggested, but a necessary short term correction of recent growth which was driven by abnormal market conditions rather than fundamental demand and wealth," said Yolande Barnes, head of residential research at the property adviser, in a press release. "The market now faces short-term price falls followed by a period of low or zero growth."

Savills has been one of the more pessimistic prognosticators in the U.K. Last year it predicted that prices would drop 6.6 percent in 2010. Instead the Nationwide Quarterly Index reported a 4.1 percent increase in the first six months.

Savills says it still expects prices to fall, just later than its original prediction. The company's revised forecast now calls for an overall 2.5 percent drop in 2010 and 1 percent drop in 2011, instead of a 3 percent gain.

"The robustness of some housing markets in the first half of 2010 may have surprised us but our expectation of price falls has not diminished," Barnes said in the statement. "Importantly--and this sets us right apart from the doomsters--we still firmly believe that this second slip will be relatively mild and short-lived if the economy continues its slow recovery, as consensus economics currently predicts."

The overall market will not "regain peak levels" until 2014, Savills says. However, prime central London property should recover more quickly. After a "flat" 2011, Savills forecasts a 7.5 percent increase in London prices in 2012.

Although Savills "firmly believes" the worst is over for the U.K., a slowdown in the economic recovery and problems with mortgage lending still could slow any market rebound, the company warns.

"Our rationale for short term price adjustments remains unchanged," Barnes said. "It is still evident that price rises to date have been the outcome of a supply/demand imbalance in the context of a very thin market, without any sustainable forces for growth at this stage."

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