Ailing housing market will see prices fall by 2% next year, says RICS

A prolonged stagnation in the property market will see house prices drop by 2% over the coming year, the body that represents estate agents predicted today. The Royal Institution of Chartered Surveyors said the number of transactions would remain flat at about 900,000 in 2011 amid continued constraints on the availability of mortgages. It added that a lack of supply of new houses coming onto the market would prevent steeper falls in prices unless the government's cuts in public spending had a greater impact on unemployment. But it warned that prospective first-time buyers would face a prolonged period of being frozen out of the market as a result of tough new conditions for obtaining home loans introduced by lenders since the onset of the financial crisis three and a half years ago. The RICS said the whole basis around which mortgages were advanced had "materially changed". In its predictions for 2011, the RICS added: "For first-time buyers squeezed out of the owner-occupier market [by the requirement for a substantial deposit to access mortgage finance] it would be nice to be able to provide some reassurance that the current circumstances are likely to prove no more than a temporary phenomenon. "However, there appears little reason at this stage to believe that a more 'normal' set of market conditions will re-emerge any time soon." Even if economic growth was weaker than anticipated next year, the RICS could not see house prices falling by more than 5%. "The lack of supply in the market is likely to prevent significant house price declines in 2011," said Simon Rubinsohn, RICS chief economist. "The narrowing gap between supply and demand will see the gentle downward trend in prices currently taking place at least partly reversed as the year wears on. Transaction levels will remain flat as mortgage lending remains subdued for another year".