House prices could fall 28%

UK property prices will fall 28 per cent from their peak, according to a report from the Centre for Economics and Business Research (CEBR).

The group's forecast predicts that property prices are set to fall a further eight per cent before the market hits bottom, which CEBR believes will be early next year.

But there will be little real growth until 2013, the economists warned.

The prediction is more optimistic than its previous forecast of a 40 per cent fall from the peak of the market in 2007, to the trough.

Average prices could rise to £170,000 by the end of 2013, from a predicted £144,000 at the end of 2009, it said.

Recent property market indicators show signs the market is improving. Estate agents and surveyors have seen a surge in interest from buyers, although this has yet to translate into higher sales.

While prices are still falling, there are also signs the decline is slowing. Figures released last week from Nationwide showed just a 0.4 per cent fall for April.

Ben Read, managing economist at CEBR, said: "Going forward, house prices are likely to remain in the doldrums for some time, as what is likely to be a slow recovery in the real economy translates into weak wage growth and stubbornly high unemployment – factors that will put a fairly heavy lid on house price inflation.

"We may start to see stronger house price growth towards 2012 or 2013 as the huge downturn in new housebuilding over the past 12 to 18 months leads to significant under-supply over the medium term."